Entrepreneurship, Competition, and Economic Development

Abstract

Entrepreneurial activity leads to the development and exploitation of new ways to do business, which in turn promotes competition either as a firm enters a market where there are other existing firms, or when it creates a new way (substitute) to meet the needs of its customers. This essay discusses indirect outcomes associated with these entrepreneurial activities, specifically in the form of knowledge spillovers, economic renewal, consumer surplus, and social value creation. In sum, entrepreneurship and the competition it engenders can create direct and indirect benefits to the entrepreneurs themselves, prospective employees, consumers, competitors, and localities and governments. Further, this essay notes that while most efforts to encourage entrepreneurial activity focuses on formal policy levers such as financial investment, public support programs, and tax and regulatory policy, it is also important to consider informal institutions and how they inhibit or encourage such activity.