Economic perspectives of entrepreneurship

Entrepreneurship plays an important role in economic processes but its study has been marginalised through the dominance of neoclassical economics, which has all but assumed the entrepreneur out of existence. This theoretical neglect is extraordinary given that the real world has elevated the entrepreneur to almost celebrity status and examples abound of how entrepreneurs have acted as catalysts of economic progress. Van Praag and Versloot (2007) on an analysis of 57 recent studies conclude that entrepreneurs have a very specific function in the economy: they create employment and productivity growth, and produce and commercialise high-quality innovations. Entrepreneurial firms also create important spill-overs that affect regional employment growth rates in the long term. We increasingly see a rising contribution of Small and Medium Enterprises (SMEs) and the informal sector as a share of total employment and GDP. Ayyagari

et al

. (2007) in a study of 76 countries find that on average SMEs constitute 64% of the economy while the informal economy on average accounts for 26% of GDP in their sample of developed and developing countries. Therefore, economics cannot and should not ignore the role of entrepreneurship in the real world because its impact is very genuine.