role of entrepreneurship in economic developmentirjcjournals.org/ijmssr/jan2017/4.pdf · role of...

International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421 Volume 6, No. 1, January 2017

Impact Factor: 4.954 www.irjcjournals.org

16

Role of Entrepreneurship in Economic Development

Dr. B. Sasikumar, Assistant Professor of Department of Economics, Arumugam Pillai Seethai

Ammal College, Thiruppattur, Sivagangai District, Tamilnadu, India

ABSTRACT

The word Entrepreneur is derived from the French word

‘Entreprendre’ meaning to undertake. Richard Cantillon,

an Irish man living in France, was the first economist who

introduced the term ‘entrepreneur’ referring to the risk-

taking function of establishing a new venture. Generally

speaking, entrepreneur refers to a person who establishes

his own business or industrial undertaking with a view to

making profit. Adam smith the foremost classical

economist assigned no significance to entrepreneurial role

in economic development in his monumental work’ An

Enquiry into the Nature and Cause of the Wealth of

Nations’ published in 1776. Smith extolled the rate of

capital formation as an important determinant of

economic development. The economic history of the

presently developed countries, for example, America,

Russia and Japan tends to support the fact that the

economy is an effect for which entrepreneurship is the

cause. The crucial role played by the entrepreneurs in the

development of the western countries has made the people

of underdeveloped countries too much conscious of the

significance of entrepreneurship for economic

development.

The role of entrepreneurship in economic development

varies from economy to economy depending upon its

material resources, industrial climate and the

responsiveness of the political system to the

entrepreneurial function. Every country is very keen in

promoting its economic development. Economic

development implies development of agriculture and

industry resulting in an increase in the per capita income

of the country. It is clear that economic development

cannot occur spontaneously. The economic development

largely depends on human resources. The entrepreneur

really acts as a hero in the drama of economic

development. The crucial role being played by

entrepreneur in the economic development of a country

can be studied under the following heads. Coordinating

role, Agents role, Role of innovation, Risk assumption

role, imitating role, Capital formation role, Balance role,

status transformation role, Employment generation role

and Export promotion role etc. Thus it is clear that

entrepreneurship in economic development of a country

can best be put as an economy is the effect, for which

entrepreneurship is the cause.

Keywords Role of entrepreneurship, Entrepreneurship in economic

development

INTRODUCTION

The word Entrepreneur is derived from the French word

Entreprendre meaning to undertake. In fact, in the 16th

century, the Frenchmen who undertook military

expeditions were referred to as Entrepreneurs. Later on, in

the 18th

century, this term got associated with persons who

started their own enterprises. Richard Cantillon, an Irish

man living in France, was the first economist who

introduced the term „entrepreneur‟ referring to the risk-

taking function of establishing a new venture.

Generally speaking, entrepreneur refers to a person who

establishes his own business or industrial undertaking with

a view to making profit. An entrepreneur is considered to

be an originator of a business venture. He takes the role of

an organizer in the process of production. The word

development is used in so many ways that it‟s precise

connotation often baffling. Nevertheless, economic

development essentially means a process over a long

period of time. Then, a simple but meaningful question

arises: what causes economic development? This question

has absorbed the attention of scholars of socio-economic

change for decades. In this section, we shall attempt to

shed light on an important aspect of that larger question,

i.e. the phenomenon of entrepreneurship. The one major

issue we shall address here is: what is the significance of

entrepreneurship for economic development? Does it add

an important independent influence to that of other factors

widely agreed to promote economic development of a

country like India.

Adam smith the foremost classical economist assigned no

significance to entrepreneurial role in economic

development in his monumental work‟ An Enquiry into the

Nature and Cause of the Wealth of Nations’ published in

1776. Smith extolled the rate of capital formation as an

important determinant of economic development. The

problem of economic development was ergo largely the

ability of the people to save more and invest more in any

country. According to him, ability to save is governed by

improvement in productivity to the increase in the

dexterity of every worker due to division of labor. Smith

regarded every person as the judge of his own advantage.



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According to him, each individual is led by an „Invisible

hand‟ in pursuing his/her interest. He always advocates the

policy of laissez-faire in economic affairs.

In his theory of economic development, David Ricardo

identified only three factors of production, namely,

machinery, capital and labor, among whom the entire

produce is distributed as rent, profit and wages

respectively. Ricardo appreciated the virtues of profit in

capital accumulation. According to him, profit leads to

saving of wealth which ultimately goes to capital

formation.

Thus, in both the classical theories of economic

development, there is no room for entrepreneurship. And,

economic development seems to be automatic and self-

regulated. Thus, the of classical economists was very cold

towards the role of entrepreneurship in economic

development. They took the attitude: “the firm is shadowy

entity and entrepreneur even shadowed or at least is shady

when he is not shadowy”

The economic history of the presently developed

countries, for example, America, Russia and Japan tends

to support the fact that the economy is an effect for which

entrepreneurship is the cause. The crucial role played by

the entrepreneurs in the development of the western

countries has made the people of underdeveloped

countries too much conscious of the significance of

entrepreneurship for economic development. Now, people

have begun to realize that for achieving the goal of

economic development, it is necessary to increase

entrepreneurship both qualitatively and quantitatively in

the country it is only active and enthusiastic entrepreneurs

who fully explore the potentialities of the country‟s

available resources – labour, technology and capital

Schumpeter visualized the entrepreneur as the key figure

in economic development because of his role in

introducing innovations. Parson and Smelser described

entrepreneurship as one of the two necessary conditions

for economic development, the other being the increased

output of capital. Harbison includes entrepreneurs among

the prime movers of innovations, and sayigh simply

describes entrepreneurship as a necessary dynamic force.

It is also opined that development does not occur

spontaneously as a natural consequence when economic

conditions are in some sense „right‟: a catalyst or agent is

always needed, and this requires an entrepreneurial ability.

It is the ability that he perceives opportunities which either

others do not see or care about. Essentially, the

entrepreneurs searches for change, see need and their

brings together the manpower, a material and capital

required to respond the opportunity what he sees. Also

Morita, the president of Sony who adopted the company‟s

products to create Walkman personal Stereo and India‟s

Gulshan Kumar of T-Series who skimmed the audio-

cassette starves vast Indian market are the clearest

examples of such able entrepreneurs.

The role of entrepreneurship in economic development

varies from economy to economy depending upon its

material resources, industrial climate and the

responsiveness of the political system to the

entrepreneurial function. The entrepreneurs contribute

more in favorable opportunity conditions than in the

economics with relatively less favorable opportunity

conditions.

Viewed from the opportunity conditions point of view the

underdeveloped regions due to the paucity of funds, lack

of skilled labor and non-existence of minimum social and

economic overheads, are less conductive to the emergency

particularly of innovative entrepreneurs. In such regions,

entrepreneurship does not emerge out of industrial

background with well developed institutions to support

and encourage it. Therefore, entrepreneurs in such regions

may not be an innovator but an imitator who would copy

the innovations introduced by the innovative entrepreneurs

of the developed regions. In these areas, according to Mc

Celland‟s concept of personality aspect of

entrepreneurship some people with high achievement

motivation come forward to behave in an entrepreneurial

way to change the stationary inertia, as they would not be

satisfied with the present status that they have in the

society.

Under the conditions of paucity of funds and the problem

of imperfect market in underdeveloped regions, the

entrepreneurs are bound to launch their enterprises on a

small-scale. As imitation requires lesser funds than

innovations, it is realized that such regions should have

more imitative entrepreneurs. And, it is also felt that

imitation of innovations introduced in developed regions

on a massive scale can brings about rapid economic

development in underdeveloped regions also. But, it does

not mean that such imitation requires in any way lesser

ability on the part of entrepreneurs.

Further, India which itself is an underdeveloped country

aims at decentralized industrial structure to militate the

regional imbalances in levels of economic development,

small-scale entrepreneurship in such industrial structure

plays an important role to achieve balanced regional

development It is unequivocally believed that small-scale

industries provide immediate large-scale employment,

ensure a more equitable distribution of national income

and also facilitate an effective resource mobilization of

capital and skill which might otherwise remain unutilized.

Lastly, the establishment of entrepreneurship development

institutes and alike by the Indian Government during the

last decades is a good testimony to her strong realization

about the premium mobile role of entrepreneurship plays

in economic development of the country.



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Every country is very keen in promoting its economic

development. Economic development implies

development of agriculture and industry resulting in an

increase in the per capita income of the country. It is clear

that economic development cannot occur spontaneously.

The economic development largely depends on human

resources. Again, human resources alone cannot produce

economic development. It requires an agent who is

nothing but a dynamic entrepreneur. The entrepreneur



entrepreneur in the economic development of a country

can be studied under the following heads.

Coordinating Role:

The essential function of an entrepreneur is to coordinate

the various factors of production. Co ordination involves

selection of the right type of factors, employment of each

factor in the right quantity, use of the best of best

technology, division of labour etc. He must also see that

the best combination of factors is making available for the

production process. Schumpeter feels that economic

development will be a reality if new combinations of

factors of production are undertaken. In the absence of

this coordination role, the factors of production will

remain idle in the country thus; entrepreneurs enhance

economic growth by coordinating and integrating the

resources available in the country.

Agent’s Role:

Entrepreneurs are aptly called agents of change.

Entrepreneurs act as catalyst or agent of economic

development by perceiving opportunities, set up business

undertakings and industries and thereby make economic

transformation. Thus, economic development is an effect

for which entrepreneurship is the cause.

Role of Innovation:

Innovation is a key to entrepreneurship innovation

implies the commercial application of an invention. As an

innovator the entrepreneur assumes the role of a pioneer

and an industrial leader. Entrepreneurs have contributed

May innovation is developing new products and in the

existing products and services. All these have resulted in

economic development by providing more employment

more income etc. In fact the intentional activity raises the

productive efficiency of the economy resulting in greater

output and income. Schumpeter finds the secret of

economic development in this rising productivity. Thus,

innovating entrepreneurship can alter the production

function of nations and bring about rapid development.

Risk Assumption Role:

The most important function of an entrepreneur is the

assumption of risk. Every productive venture involves

risks and production cannot take place if people do not

come forward to bear risks. They economic reward for

risk bearing is profit. The quantum of profit depends upon

the quantum of risks undertaken. Profit leads to saving of

wealth which ultimately goes to capital formation which is

the basic ingredient for economic development. Thus,

entrepreneurs promote economic development by coming

forward to assume risks of productive ventures.

Imitating Role:

Entrepreneurs in developing countries take the role of

imitators who generally copy the innovations introductive

by the innovative entrepreneurs of the developed

countries. They copy the organization technology and the

products of innovation from other developed regions.

They are capable of adopting the innovative technology to

the local conditions prevailing in the country and establish

business enterprises. Imitative entrepreneurship seems to

be the best medicine for underdeveloped countries to

overcome their entrepreneurial ills and bring about

substantial economic development. They constitute the

main spring of development of underdeveloped regions.

Capital Formation Role: Entrepreneurs promote capital formation by mobilizing the

idle savings of the public. Again, the profits they earn

lead to saving of wealth which ultimately goes to capital

formation. Entrepreneurs have been referred to as the

human agents‟ needed to mobilize capital to exploit

natural resources to create markets and to carry on trade.

Without capital formation economic development would

remain static.

Balancing Role:

Developing countries like India aims at decentralized

industrial structure to remove the regional imbalances in

the levels of economic development. Entrepreneurs play a

dominant role to achieve balanced regional development

by starting small-scale industries. Small-scale industries

provide immediate large-scale employment, ensure a more

equitable distribution on national income and thus

facilitate balanced regional development. Moreover, it

should be noted that from small enterprises, entrepreneurs

get inspiration to start large units which have a wider

impact on the economy as whole.

Status Transformation Role:

Entrepreneurs create wealth generate employment and

income and thereby they increase the standard of livings of

the people. People are able to have a better standard of

living by getting improved products and comforts

provided by entrepreneurs. Increase in the standard of

living automatically promotes and stimulates economic

development and it has the effect of reducing the wide

disparity in income levels. It also helps to reduce the

concentration of economic power.



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Employment Generation Role:

Entrepreneurs with high achievement motivation come

forward to establish business and industry venture which

provide immediate large-scale employment. Thus

entrepreneurs help to reduce the unemployment problem

in the country. In fact, unemployment problem is the root

cause of all socio-economic problems.

Export Promotion Role:

Entrepreneurs also promote a country‟s export trade which

is an important ingredient to economic development.

Thus, the entrepreneurs are always on the lookout of

making the economic system at its dynamic best. They

stimulate progress by means of their entrepreneurial

activities and act as mainspring of economic development.

They have the potential of transforming their

underdeveloped economies into developed one. Thus it is

clear that entrepreneurship in economic development of a

country can best be put as an economy is the effect for

which entrepreneurship is the cause

CONCLUSION

Development Economic development implies

development of agriculture and industry resulting in an

increase in the per capita income of the country. It is clear

that economic development cannot occur spontaneously.

The economic development largely depends on human

resources. Again, human resources alone cannot produce

economic development. It requires an agent who is

nothing but a dynamic entrepreneur. The entrepreneur



entrepreneur in the economic de Thus, the entrepreneurs

are always on the lookout of making the economic system

at its dynamic best. They stimulate progress by means of

their entrepreneurial activities and act as mainspring of

economic development. They have the potential of

transforming their underdeveloped economies into

developed one. Thus it is clear that entrepreneurship in

economic development of a country can best be put as an

economy is the effect for which entrepreneurship is the

cause development of a country can be studied under the

following heads.

REFERENCES

[1] Gordon E., (2013) Entrepreneurship

Development, Himalaya publishing House,

Chennai, p-1.

[2] Khanka S.S., (2008) Entrepreneurial

Development, Chand & Company, New Delhi, pp-

43-45.

[3] Khanka S. S. (1994) Industrial Development

Backward Areas, Himalaya Publishing House,

New Delhi, p-32.

[4] Kuchhal S.C. (1963) Industrial Economy of

India, Chaitanya Publishing House, Allahabad, p-

78.

[5] Malen W. (1962) Prospects of Indian

Development, The Free Press, Glance, Illinois,

p112.

[6] McCllent ,D.C, (1961) The Achieving Society,

The Free Press, New York, p-82.

[7] Person. T and N. J. Smelser (1956) Economy and

Society, The Free Press, New York, p-33.

[8] Schumpeter J.A., (1934) The Theory of Economic

Development, Harvard University Press,

Cambridge, p-27.

[9] Smith Adam., (1776) An Enquiry Into The Nature

and Causes of Wealth of Nation, GR sons Ltd,

London, p-123.

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