Entrepreneurship and Economic Development in a Developing Country

Abstract

This article analyses the possible link between entrepreneurship and economic development for the case of India. This link has been studied extensively for developed countries, but less so for developing countries. Using the GEM-model as a reference, we expect declining rates of entrepreneurship, as economic development opens up employment possibilities decreasing the number of necessity entrepreneurship. This pattern, however, is not found in the Indian case. Rather, entrepreneurship appears to be an important driver of recent economic growth. This can be explained by the fact that India is very much a service-based economy that facilitates small-scale firms. Although the level of entrepreneurship is increasing over time, the quality of the small firms remains rather stable; the share of registered firms remains equal over time. Given the importance of high-quality entrepreneurship for economic development, it seems that increasing the quality of entrepreneurship should be the main focus of policy measures.