By far the most crucial economic boost factor in the last quarter of the twentieth century, no doubt, is globalization. The international competitive environment caused by world globalization has affected the company behaviours as well as entrepreneurs. As a result, increasing global competition has led all economic actors to search for alternative sources in terms of business sustainability and continuity of growth and development of nationwide economies. In this context, we are going to answer who an entrepreneur is, examine the brief history of entrepreneurship, and we will also cover; economic growth and entrepreneurship together with Entrepreneurship Theories. We will also study the effects of the youth unemployment rate (YUR), and ease of doing business ranks (EDBR) effects on global entrepreneurship index (GEI) on behalf of socio-economic development.
Definition of Entrepreneurship
Even there is no universally accepted definition of entrepreneurship; we can define an entrepreneur as an individual who undertakes new tasks and adds value to a product or service. Schumpeter, 1934; describes an entrepreneur as an individual who is both innovative and creative, on the other hand, Backman, 1983; makes the comparison with scientist and states an entrepreneur should be as a sceptical as a scientist. While Kets de Vries, 1985; discussed on confliction and rejection and observed that some entrepreneurs left big companies to start their own companies after their ideas and opinions are rejected. Kao, 1989 identify an entrepreneur as a committed to targets, achievement-oriented, persistent, realistic, reliable, a risk-taker and has an internal locus of control and high integrity. He also pointed out that successful entrepreneurs were not necessarily successful managers. Drucker, 1970; in contrast, defines entrepreneurs as ones who consider the changes that take place in the market as an opportunity to do business and being innovative and creative. Moreover, Miller, 1983; describes entrepreneurs as being proactive rather than reactive, as an alternative Venkataraman, 1997; as being an opportunity identifier and Sexton and Bowman, 1985; as moderate risk-takers.
Above all, entrepreneurship is setup by generating opportunities, building ideas, taking calculated risks, creating wealth by the individuals and ventures, firms, companies; that have strong motivation, creativity, vision, optimism, leadership, discipline, passion, networking, resources, risk tolerance and decisiveness.
History of Entrepreneurship
Entrepreneurship history goes back to 17,000 BCE, according to some articles we can see first entrepreneurs related with trading issues between individuals that took place in New Guinea though the first big transition took place about 12,000 years ago during the Agricultural Revolution.
However, first noted sources could be seen on Adam Smith’s “Wealth of Nations” (1776). Smith definition for an entrepreneur is “an individual, who undertakes the formation of an organization for commercial purposes by recognizing the potential demand for goods and services, and thereby acts as an economic agent and transforms demand into supply.”
Alfred Marshall’s states the four factors of production; land, labour, capital and considered entrepreneurship as the driving factor that brings these all together.
In contrast, Schumpeter, who was an Austrian political economist, has highlighted the role of entrepreneurship as the primary factor for economic development in his theories. He was the first scholar to theorize about entrepreneurship; indeed, he is also one of the most leading economists of the early 20th century and publicizes the term “creative destruction” in economics. Furthermore, Schumpeter identified innovation as a critical dimension of economic change.
Economic Growth and Entrepreneurship
It is possible to expand further how entrepreneurship can be beneficial for economic development. To remain within the framework of the topic, we should summarize these effects as follows in three critical ways;
The first is the development of spillovers of information. Information spillovers are, as described in the literature, an essential mechanism that underlies endogenous development.
A second is creating economic growth by entrepreneurship capital by raising established company numbers and growing competition. In literature, it is addressed that rivalry is more useful to externalities of information than to local monopolies.
A third is the generation of economic production by presenting diversity among businesses through entrepreneurial capital. In addition to producing a more significant number of enterprises, entrepreneurship capital increases the variety of enterprises at a specific site.
The ideas of economic entrepreneurship date back to the first half of the 1700s with Richard Cantillon’s studies, who introduced the concept of entrepreneurs as risk-takers. The classic, neoclassical and Austrian market schools of thought process all pose reasons for entrepreneurship focusing, for the most part, on the economic conditions and the opportunities they make.
Entrepreneurial economic theories appear to attract substantial criticism for failing to consider the complex, transparent nature of business economies, ignoring the unique nature of the entrepreneurial operation, and downplaying the varied contexts in which entrepreneurship exists.
Emotional and mental sides of the individual, promote entrepreneurial activities according to the psychological theories of entrepreneurship. David McClelland, who is a psychologist and a professor emeritus at Harvard, putting the theory of that entrepreneurs need accomplishment that drives their behaviour. On the other hand, a locus of control theory also garnered attention put forward by Julian Rotter, who is also an emeritus professor at the University of Connecticut. Rotter has stated two types of locus of controls; internal and external. There are also a few psychological theories of entrepreneurship like; McCrae’s and Costa’s “Big Five Traits approach”, Hagen’s Theory of entrepreneurship, Michael Frese’s “Action Regulatory Theory” and “Entrepreneurial Personality Systems”.
From the psychological perspective, understanding entrepreneurship help to understand if entrepreneurial characteristics are healthy or not.
Addressing finally, though unsupported by studies, indicates personality traits that drive entrepreneurial behaviour, ranging from innovation and resilience to optimism.
Sociologic and Anthropologic Theory
Rather than the separation of sociology and anthropology in this study, we prefer to sum it all since both disciplines study the behaviour of individuals within the build of a group. The sociological theory can be identified as concentrating on the different social contexts that allow entrepreneurs to accomplish opportunities. Even several studies have helped us to understand the socio theory behind the entrepreneurship mostly known ones are; Max Weber’s thesis based on religion and social change, Cochran’s idea that determined by cultural values, social sanctions and role expectations. The other two widely known by researchers are Hagen’s approach based on social statuses and Frank Young’s paid attention to individual-level qualities.
Similar to sociological side theories, the anthropologic theory also remark the success of the entrepreneurs are based on origin, development and beliefs and social, cultural contexts should be explored.
Business Management Guru Peter Drucker and Howard Stevenson, who was an Emeritus Professor at HBS, pointed out this theory based on opportunity. According to this theory; entrepreneurs continuously seeks for changes and responds to it to create an opportunity, not like the Schumpeter and Austrian School disciplines that states the cause of change is the entrepreneurs.
Furthermore, Stevenson extends this approach to sum up with resourcefulness and credits entrepreneurship as “the pursuit of opportunity beyond the resources you currently control.”
The Resource-based Entrepreneurship Theory focuses on individuals access on resources like capital/finance, social/network and education/experience.
The theory emphasizes that financial, social and human resources are critical, thus accessing to capital, social networking that creates new opportunities and knowledge comes from education and experience plays a significant role according to this theory. We will examine these below;
Blanchflower et al, 2001; Evans & Jovanovic, 1989; and Holtz-Eakin et al, 1994 studies show that if entrepreneurs have easy access to capital and finance liquidity, it is more common they set up new companies. Individuals with financial capital and liquidity are more likely to benefit from the financial sources and grade up the opportunity potentials of entrepreneurship, according to Clausen, 2006. Hence, this theory of financial resources argued by contrary researches that most entrepreneurs to start new companies succeed with other aspects of entrepreneurialism rather than the funding and financial resources.
On the other hand, Hurst and Lusardi, 2004; found some evidence on that benefits from liquid resources according to financial theory only for the people at the top of the range like wealthy individuals. Contraversely unwealthy individual who has access to capital and liquidity does not make much difference.
It is also worth seeing that with the technological changes in blockchain and fintech, rather than IPOs that is overwhelmed bureaucratic way to put liquid cash to the venture capitals, ICOs which are backed by cryptography and cryptocurrencies changed the way of funding lately. With some crypto platforms like Ethereum, Tron and Stellar, tech-backed companies have a new way of funding mechanisms to boost up entrepreneurship levels with the theory of financial resources and liquidity.
Davidsson and Honing, 2003; states that, there are not many resources needed rather than the financial capital to start up a company or a venture.
Not to forget; there are also researches indicates that certain individuals are more capable than others of detecting and leveraging opportunities because they have greater access to information and expertise (Aldrich, 1999, Anderson & Miller, 2003, Shane 2000, Shane & Venkataraman 2000).
It is clear that new ventures need to interact with environments externally, and inadequate communication and social skills can cause negative impacts on ventures and companies.
According to Shane and Eckhardt, 2003; large social network and networking capabilities of an entrepreneur could have a significant effect to transform the opportunity into a wealthy business startup.
Lee, Lee and Pennings, 2001; studies show that more significant economic opportunities and valuable resources can be achievable by entrepreneur-oriented companies which can use their social networking channels.
Aldrich and Zimmer, 1986; agree upon social networking is a crucial resource on opportunity identification, idea testing and resource acquirement for new companies.
Given this, social interactions, relationship qualities, external contacts, cover the topic of social resources theory of entrepreneurship. Consecutively good use of social resources has a positive relationship between companies.
Human Capital Resources
According to Kim, Aldrich, & Keister, 2003; adequate human capital resources encourages entrepreneurs to compete in the business world and positive effect. Shortly human capital can be described as skills and knowledge that is beneficial to an individual for entrepreneurship.
Shane, 2000; also states knowledge as a human capital plays a significant role, on the other hand, McGrath, 1999; states experiences from the previous business failures can have positive effects for a failed entrepreneur.
Main Study: Effects of Youth Unemployment Rates (YUR) and Ease of Doing Business (EDBR) to Entrepreneurship Levels (GEI)
There remained uncertainty about the relationship between entrepreneurship and unemployment. On the one hand, the basic principle of income preference, which was the source of several studies based on individuals decide to start a company and become an entrepreneur (Blau, 1987; Evans and Leighton, 1990; Evans and Jovanovic, 1989; and Blanchflower and Meyer, 1994), indicates that rising unemployment would contribute to a rise in a startup or entrepreneurial development on the other hand. In the other side, the unemployed appear to have smaller intellectual capital endowments and entrepreneurial talent needed to create and maintain a new business (Lucas, 1978; Jovanovic, 1982), indicating that high unemployment is correlated with low levels of entrepreneurial development. A low rate of entrepreneurship can also be a consequence of low levels of economic development, which also represent higher levels of unemployment (Audretsch, 1995). Entrepreneurship prospects are not just the product of the push impact of unemployment, but also the pull impact of a prosperous economy and past entrepreneurship. In addition to the unemployment culminating in a more or less entrepreneurial enterprise, to some degree, the opposite is also the case. New firm startups recruit workers in this scenario, culminating in a corresponding decline in unemployment (Picot et al., 1998; Pfeiffer and Reize, 2000).
We have gathered data from OECD (Youth Unemployment Rate-YUR), The World Bank (Ease of Doing Business Rank-EDBR) and GEDI (Global Entrepreneurship Index). And we will try to analyze the effects of Youth Unemployment Rate and Ease of Doing Business Rank to Global Entrepreneurship Index. We will try to explain the gatherings with a simple argument rather than complicated correlation coefficient calculations.
(Youth unemployment rate, 2019)
Above figure, we can examine that Greece, Spain and Italy have the highest YUD for 2019, followed by Turkey, France, Sweden, Finland, Luxemburg, Chile and Colombia. As per Blau, 1987; Evans and Leighton, 1990; Evans and Jovanovic, 1989; and Blanchflower and Meyer, 1994; these countries are expected to have higher Global Entrepreneurship Index.
(Global Entrepreneurship Index, 2019)
However in the top ten rankings, there are only two countries listed in GEI for 2019, those are France and Sweden
(Doing Business Measuring Business Regulations, 2019)
About figure, we can examine that New Zealand, Singapore and, Hong Kong are the countries to do business easily followed by Denmark, Korea, USA, Georgia, UK, Norway and Sweden.
(Global Entrepreneurship Index, 2019)
In this research we have more supported countries for the thesis of Blau, 1987; Evans and Leighton, 1990; Evans and Jovanovic, 1989; We see that Denmark, USA, UK and Sweden which are the countries listed in both top 10 of GEI and EDBR.
Evaluation and Conclusion
The objective of this paper was to examine the theories and the relation between unemployment-ease of doing business to entrepreneurship levels in the top ten countries. From the conclusion above, it is clear that the field of entrepreneurship is so broad and assisted by the theories from an economic side, psychological side, socio-anthropological side as well as an opportunity based and resource-based.
It is vital that for long, it has been accepted that entrepreneurial activities are an essential catalyst of socio-economical growth. However in this study, we do not see a direct relation of GEI related to YUD and EDBR as Blau, 1987; Evans and Leighton, 1990; Evans and Jovanovic, 1989; and Blanchflower and Meyer, 1994 suggested.
Wider reading approaches from; Audretsch, 1995; who suggests a low rate of entrepreneurship may also be a consequence of the low economic growth levels, which also reflect higher levels of unemployment. Picot et al., 1998; who assumes new company startups hire employees, resulting in a subsequent decrease in unemployment and, Lucas, 1995; Jovanovich, 1982; who suggests that high unemployment may also be a consequence of the low economic growth levels.
On the whole, entrepreneurship, along with the innovation effects to socio-economic development is challenging to analyze and determining the facts that YUD and EDBR to GEI is just a small portion of this long-term approach.
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