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“Importance and Role of Entrepreneurship in Economic Development

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Vivek Nagarajan Samuel Anbu Selvan S.C.B

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NIJMAH, Vol .1(1): 1-4, 2020

Importance and Role of Entrepreneurship in Economic

Development
S.C.B. Samuel Anbu Selvan1 and N. Vivek2
1
Associate Professor of Commerce, The American College, Madurai
2
Research Scholar in Commerce, Madurai Kamaraj University, Madurai
Corresponding author: Email: [email protected]
(Received: April 2, 2020, Accepted after Revision: April 19, 2020)
Abstract
Entrepreneurship plays an influential role in the economic growth and standard of living of the country. As a start-up founder or
small business owner, you may think that you are simply working hard to build your own business and provide for yourself and
your family. But you are actually doing a whole lot more for your local community, state, region, and the country as a whole.
This chapter deals about important roles an entrepreneur plays in the economic development of the country. This article deals
about the major roles played by an entrepreneur in the economic development of an economy.
Keywords: Entrepreneurship, Start-Up, Economic Growth

Introduction
Entrepreneurial development today has become very significant; in view of its being a key to economic
development. The objectives of industrial development, regional growth, and employment generation depend
upon entrepreneurial development. Entrepreneurs are, thus, the seeds of industrial development and the fruits of
industrial development are greater employment opportunities to unemployed youth, increase in per capita
income, higher standard of living and increased individual saving, revenue to the government in the form of
income tax, sales tax, export duties, import duties, and balanced regional development.

Concept of Entrepreneurship
The word “entrepreneur” is derived from the French verb enterprendre, which means ‘to undertake’. This refers to
those who “undertake” the risk of new enterprises. An enterprise is created by an entrepreneur. The process of
creation is called “entrepreneurship”. Entrepreneurship is a process of actions of an entrepreneur who is a person
always in search of something new and exploits such ideas into gainful opportunities by accepting the risk and
uncertainty with the enterprise.

Entrepreneurial Process
Entrepreneurship is a process, a journey, not the destination; a means, not an end. All the successful
entrepreneurs had went through this process. To establish and run an enterprise it is divided into three parts – the
entrepreneurial job, the promotion, and the operation. Entrepreneurial job is restricted to two steps, i.e.,
generation of an idea and preparation of feasibility report. In this article, we shall restrict ourselves to only these
two aspects of entrepreneurial process.

Novel International Journal of Multidisciplinary Arts & Humanities 1(1): 1-4.

Copyright© 2020, New Swertia Publications, Pondicherry, India
All Rights Reserved
 Figure: 01 The Entrepreneurial Process

Objective of the Study

 To study the importance and role of entrepreneurship in economic development

Importance of Entrepreneurship

1. Development of managerial capabilities

The biggest significance of entrepreneurship lies in the fact that it helps in identifying and developing managerial
capabilities of entrepreneurs. An entrepreneur studies a problem, identifies its alternatives, compares the
alternatives in terms of cost and benefits implications, and finally chooses the best alternative. This exercise helps
in sharpening the decision making skills of an entrepreneur. Besides, these managerial capabilities are used by
entrepreneurs in creating new technologies and products in place of older technologies and products resulting in
higher performance.

2. Creation of organisations

Entrepreneurship results into creation of organisations when entrepreneurs assemble and coordinate physical,
human and financial resources and direct them towards achievement of objectives through managerial skills.

3. Improving standards of living

By creating productive organisations, entrepreneurship helps in making a wide variety of goods and services
available to the society which results into higher standards of living for the people. Possession of luxury cars,

Novel International Journal of Multidisciplinary Arts & Humanities 1(1): 1-4.

Copyright© 2020, New Swertia Publications, Pondicherry, India
All Rights Reserved
computers, mobile phones, rapid growth of shopping malls, etc. are pointers to the rising living standards of
people, and all this is due to the efforts of entrepreneurs.

4. Means of economic development

Entrepreneurship involves creation and use of innovative ideas, maximisation of output from given resources,
development of managerial skills, etc., and all these factors are so essential for the economic development of a
country.

Role of Entrepreneurship in Economic Development

1. Promotes Capital Formation: Entrepreneurs promote capital formation by mobilizing the idle savings of
public. They employ their own as well as borrowed resources for setting up their enterprises. Such type of
entrepreneurial activities leads to value addition and creation of wealth, which is very essential for the
industrial and economic development of the country.
2. Creates Large-Scale Employment Opportunities: Entrepreneurs provide immediate large-scale
employment to the unemployed which is a chronic problem of underdeveloped nations. With the setting up
of more and more units by entrepreneurs, both on small and large-scale numerous job opportunities are
created for others. As time passes, these enterprises grow, providing direct and indirect employment
opportunities to many more. In this way, entrepreneurs play an effective role in reducing the problem of
unemployment in the country which in turn clears the path towards economic development of the nation.
3. Promotes Balanced Regional Development: Entrepreneurs help to remove regional disparities through
setting up of industries in less developed and backward areas. The growth of industries and business in
these areas lead to a large number of public benefits like road transport, health, education, entertainment,
etc. Setting up of more industries leads to more development of backward regions and thereby promotes
balanced regional development.
4. Reduces Concentration of Economic Power: Economic power is the natural outcome of industrial and
business activity. Industrial development normally leads to concentration of economic power in the hands
of a few individuals which results in the growth of monopolies. In order to redress this problem a large
number of entrepreneurs need to be developed, which will help reduce the concentration of economic
power amongst the population.
5. Wealth Creation and Distribution: It stimulates equitable redistribution of wealth and income in the
interest of the country to more people and geographic areas, thus giving benefit to larger sections of the
society. Entrepreneurial activities also generate more activities and give a multiplier effect in the economy.
6. Increasing Gross National Product and Per Capita Income: Entrepreneurs are always on the lookout for
opportunities. They explore and exploit opportunities, encourage effective resource mobilization of capital
and skill, bring in new products and services and develops markets for growth of the economy. In this way,
they help increasing gross national product as well as per capita income of the people in a country. Increase
in gross national product and per capita income of the people in a country, is a sign of economic growth.
7. Improvement in the Standard of Living: Increase in the standard of living of the people is a characteristic
feature of economic development of the country. Entrepreneurs play a key role in increasing the standard
of living of the people by adopting latest innovations in the production of wide variety of goods and services
in large scale that too at a lower cost. This enables the people to avail better quality goods at lower prices
which results in the improvement of their standard of living.
8. Promotes Country’s Export Trade: Entrepreneurs help in promoting a country’s export-trade, which is an
important ingredient of economic development. They produce goods and services in large scale for the
purpose earning huge amount of foreign exchange from export in order to combat the import dues

Novel International Journal of Multidisciplinary Arts & Humanities 1(1): 1-4.

Copyright© 2020, New Swertia Publications, Pondicherry, India
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 requirement. Hence import substitution and export promotion ensure economic independence and
development.
9. Induces Backward and Forward Linkages: Entrepreneurs like to work in an environment of change and try
to maximize profits by innovation. When an enterprise is established in accordance with the changing
technology, it induces backward and forward linkages which stimulate the process of economic
development in the country.
10. Facilitates Overall Development: Entrepreneurs act as catalytic agent for change which results in chain
reaction. Once an enterprise is established, the process of industrialization is set in motion. This unit will
generate demand for various types of units required by it and there will be so many other units which
require the output of this unit. This leads to overall development of an area due to increase in demand and
setting up of more and more units. In this way, the entrepreneurs multiply their entrepreneurial activities,
thus creating an environment of enthusiasm and conveying an impetus for overall development of the area.

Conclusion
The study concludes that, the important role that entrepreneurship plays in the economic development of an
economy can now be put in a more systematic and orderly manner as follows;
1. Entrepreneurship promotes capital formation by mobilising the idle saving of the public.
2. It provides immediate large-scale employment. Thus, it helps reduce the unemployment problem in the
country, i.e., the root of all socio-economic problems.
3. It promotes balanced regional development.
4. It helps reduce the concentration of economic power.
5. It stimulates the equitable redistribution of wealth, income and even political power in the interest of
the country.
6. It encourages effective resource mobilisation of capital and skill which might otherwise remain
unutilized and idle.
7. It also induces backward and forward linkages which stimulate the process of economic development in
the country.
8. Last but no means the least, it also promotes country’s export trade i.e., an important ingredient to
economic development.

Disclosure statement: No conflict of interest was reported by the authors.

Important Note: New Swertia Publications Publishers are not liable for the content or functionality of any supporting materials
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References

 Mathew Manimala, Entrepreneurship Theory at the Crossroads, Paradigms & Praxis, Biztrantra ,2nd
Edition ,2005
 Prasama Chandra, Projects – Planning, Analysis, Selection, Implementation and Reviews, Tata McGraw-
Hill, 1996
 P.C.Jain (ed.), Handbook for New Entrepreneurs, EDII, Oxford University Press, New Delhi, 1999.
 Staff College for Technical Education, Manila and Centre for Research and Industrial Staff Performance,
Bhopal, Entrepreneurship Development, Tata McGraw-Hill Publishing Company Ltd., New Delhi, 1998.
 P.Saravanavel, Entrepreneurial Development, Ess Pee kay Publishing House, Chennai - 1997.
 http://www.yourarticlelibrary.com/entrepreneur/entrepreneurship-characteristicsimportance-types-and-
functions-of-entrepreneurship/5228

Novel International Journal of Multidisciplinary Arts & Humanities 1(1): 1-4.

Copyright© 2020, New Swertia Publications, Pondicherry, India
All Rights Reserved

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