Entrepreneurship and Economic Growth

Maria Minniti Southern Methodist University Cox School of Business

DallasCFR, Janaury 2012

A pop quiz

A pop quiz

• Do you think entrepreneurship matters for economic growth?

A pop quiz

• Do you think entrepreneurship matters for economic growth?

Yes

A pop quiz

• Do you think entrepreneurship matters for economic growth?

Yes • How does entrepreneurship contribute to

economic growth?

A pop quiz

• Do you think entrepreneurship matters for economic growth?

Yes • How does entrepreneurship contribute to

economic growth?The answer to this question is complex and far from trivial

What do we know?

• Entrepreneurship matters for economic growth • Economic growth matters for entrepreneurship

(Opportunities in US and Dominican Republic are different)

• Entrepreneurship is a human universal

• Productive, unproductive and destructive entrepreneurship

• Let’s look at some facts

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Early-Stage Entrepreneurs by Country (Source: GEM Executive Report 2009)

Prevalence rates of early-stage entrepreneurial activity: city versus country

Source: Z. Acs, N. Bosma and R. Sternberg. “Entrepreneurship in World Cities” in The Dynamics of Entrepreneurship, M. Minniti, (ed.) 2011, Oxford University Press.

Prevalence rates of early-stage entrepreneurship

Source: Data are from Z. Acs, N. Bosma and R. Sternberg. “Entrepreneurship in World Cities” in The Dynamics of Entrepreneurship, M. Minniti, (ed.) 2011, Oxford University Press.

Entrepreneurship in urban contextsThe vast majority of cities exhibit more entrepreneurship than

the rest of their countries

WHY? (The answer has implicit policy implications)

Jacobs’ urban externalities

The more intensive local competition among firms is, the higher regional economic growth. Heterogeneity, not specialization in sectoral-regional clusters, is seen as the most important determinant of growth.

Agglomeration and technological change

Technological change is the most important factor in long-run macroeconomic growth because of knowledge spillovers. Thus, spatial proximity is an important factor in innovation is strongly supported in the literature.

Creativity and the ‘geography of talent’ hypothesis

Cultural and ethnic diversity attract creative and adaptable people. Adaptable people are better equipped to recognize opportunities and to create a self-enforcing intraregional process of economic growth.

Entrepreneurship and network externalities

Source: M. Minniti. 2005. Entrepreneurship and network externalities. Journal of Economic Behavior and Organization.

So what promotes entrepreneurship?- Entrepreneurship is influenced significantly by network externalities- Cities are complex systems from which a variety of network

externalities emerge (more than in non-urban contexts)- Externalities facilitate entrepreneurs’ ability to develop a

knowledge advantage - Entrepreneurs are people who deviate from the norm- Externalities may be positive or negative

- Governments can promote underlying conditions leading to externalities conducive to productive entrepreneurship

- Governments don’t have a knowledge advantage- Policies based on a incorrect understanding of the nature of

entrepreneurship are costly and have little if any effect on the economy

• GOVERNMENTS CANNOT PICK WINNERS

To Sum Up:

- Entrepreneurship is a human universal- Entrepreneurship is a necessary condition for growth- Cities are more entrepreneurial than countries- Cities are more entrepreneurial than countries because of

a web of network externalities- Only positive externalities lead to productive

entrepreneurship- Entrepreneurship is a bottom up phenomenon based on

specialized knowledge- Entrepreneurship policies suffer from non-computability

issues- Even local governments cannot pick winners- Policies can promote productive entrepreneurship (as

opposed to other forms of entrepreneurship)

Thank you