Role of Entrepreneurship in Economic Development

Entrepreneurship is widely treated, in the AP Inter II year Commerce course, as one of the key drivers of a country's economic development, alongside land, labour, and capital. Its contribution can be explained under several heads:

• Generation of employment -- new ventures, particularly small and medium enterprises, are a major source of new jobs, both directly (in the enterprise itself) and indirectly (in the businesses that supply it or depend on it).
• Capital formation -- entrepreneurs mobilise the idle savings of the public, whether their own or that of investors, and convert them into productive capital assets -- plant, machinery, and infrastructure.
• Balanced regional development -- when entrepreneurs set up ventures in backward or rural areas (often encouraged by tax and other incentives), industry and income spread more evenly across a state or country instead of concentrating only in already-developed centres.
• Introduction of innovation -- new products, new production methods, and new ways of reaching customers are, in large part, introduced by entrepreneurs rather than existing large firms, which tend to be more risk-averse.
• Increase in per capita income and GNP -- by creating new goods, services, and jobs, entrepreneurship adds directly to a country's national output and, over time, to its per capita income.
• Backward and forward linkages -- a new enterprise typically creates demand for raw material and components (a backward linkage to its suppliers) and creates new products or services for other businesses and consumers to use (a forward linkage), each of which stimulates further economic activity.
• Promotion of exports -- many new-generation start-ups, particularly in technology and services, earn valuable foreign exchange by exporting goods and services, strengthening the country's balance of payments. …