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Out with the sleaze, in with the ease: Insufficient for entrepreneurial development?

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Naude, Wim

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Abstract

Improved governance and lower start-up costs may not be sufficient for encouraging the type of entrepreneurship that matters for economic growth. Using panel data on 60 countries spanning the period 2003-07 this paper establishes that (i) opportunity-motivated entrepreneurship (as opposed to necessity-motivated entrepreneurship) drives economic growth; (ii) governance and the start-up costs are not significant determinants of opportunity entrepreneurship; and (iii) better governance leads to higher economic growth. This implies that better governance and lower start-up costs, widely advocated as measures to promote entrepreneurship in developing countries, may not in fact be enough. Indeed, despite poorer governance and higher start-up costs, rates of opportunity-motivated entrepreneurship are higher in developing countries. Second, better governance can lead to better growth through reducing the impact of destructive entrepreneurship (including rent-seeking), even though this may not result in a reallocation of effort from destructive towards opportunity-motivated entrepreneurship. The paper concludes by discussing whether these results call in question the popular belief that a lack of opportunity-motivated entrepreneurship constrains developing country growth, and whether there is justification for more proactive government

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Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Papers with number UNU-WIDER Research Paper RP2009/01.

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Length: 35
Date of creation: 2009
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Handle: RePEc:unu:wpaper:rp2009

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Keywords: entrepreneurship; development; institutions;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Naude, Wim, 2009. "Entrepreneurship is not a Binding Constraint on Growth and Development in the Poorest Countries," Working Papers Research Paper No. 2009-4, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
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