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The Economic Benefits and Costs of Entrepreneurship: A Review of the Research

Author

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  • van Praag, C. Mirjam
  • Versloot, Peter H.

Abstract

Many studies in the entrepreneurship literature are motivated by the statement that entrepreneurship has important economic value, for instance, in terms of productivity and growth, employment generation or, innovation. This claim is often substantiated by a reference to (at most) one or two studies finding supporting evidence. However, whether the cited reference was one of the few out of many studies that "happened" to find supportive evidence is not yet clear. This paper examines to what extent recent empirical evidence can collectively and systematically substantiate the claim that entrepreneurs cause important economic benefits. Hence, a systematic review is provided that answers the question: What is the contribution of entrepreneurs to the economy in comparison to non-entrepreneurs? We study the relative contribution of entrepreneurs to the economy based on four measures that have most widely been studied empirically. Hence, we answer the particular question: What is the contribution of entrepreneurs to (i) employment generation and dynamics, (ii) innovation, and (iii) productivity and growth, relative to the contributions of the entrepreneurs' counterparts, i.e., the "control group?" A fourth type of contribution studied is the role of entrepreneurship in increasing individuals' utility levels. Based on 57 recent studies of high quality that contain 87 relevant separate analyses, we conclude that entrepreneurs have a very important — but specific — function in the economy. They engender relatively much employment creation, productivity growth and produce and commercialize high quality innovations. They are more satisfied than employees. More importantly, recent studies show that entrepreneurial firms produce important spillovers that affect regional employment growth rates of all companies in the region in the long run. However, the counterparts cannot be missed as they account for a relatively high value of productivity and growth, a less volatile and more secure labor market, higher paid jobs and a greater number of innovations and they have a more active role in the adoption of innovations.

Suggested Citation

  • van Praag, C. Mirjam & Versloot, Peter H., 2007. "The Economic Benefits and Costs of Entrepreneurship: A Review of the Research," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 4(2), pages 65-154, October.
  • Handle: RePEc:now:fntent:0300000012
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    File URL: http://dx.doi.org/10.1561/0300000012
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    Cited by:

    1. Bjuggren, Carl Magnus & Daunfeldt, Sven-Olov & Johansson, Dan, 2010. "Ownership and High-Growth Firms," Ratio Working Papers 147, The Ratio Institute, revised 29 Sep 2010.
    2. Grossmann, Volker, 2009. "Entrepreneurial innovation and economic growth," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 602-613, December.
    3. Magnus Henrekson & Dan Johansson, 2010. "Gazelles as job creators: a survey and interpretation of the evidence," Small Business Economics, Springer, vol. 35(2), pages 227-244, September.
    4. repec:gem:wpaper:1201 is not listed on IDEAS
    5. Gerrit de Wit & Mercedes Teruel, 2011. "Determinants of high-growth firms," Scales Research Reports H201107, EIM Business and Policy Research.
    6. André Stel & José Millán & Concepción Román, 2014. "Investigating the impact of the technological environment on survival chances of employer entrepreneurs," Small Business Economics, Springer, vol. 43(4), pages 839-855, December.
    7. Mediha Sahin & Alina Todiras & Peter Nijkamp & Enno Masurel, 2012. "Economic performance of migrant entrepreneurs in the high-tech sector: design and application of the GALAXY model," Chapters,in: Migration Impact Assessment, chapter 7, pages 227-260 Edward Elgar Publishing.

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