Innovation and Entrepreneurship

In the market, entrepreneurship often link with business. Usually, the more entrepreneurship appears in the market, the more positive influence will impact on market. There are two ways to consider the relationship between entrepreneurship and economic growth which are named as theoretical approach and empirical approach (n.d. 2005). The first way to connect entrepreneurship with economic development is theoretical approach. According to most economic, psychological and sociological research, entrepreneurship is pointed as a driving force of economic development. In Joseph Schumpeter's theory, it is said that

"Whatever the type, someone is an entrepreneur only when he actually carries out new combinations, and loses that character as soon as he has built up his business."

By coming up with new combination, customers' existing demand will get better satisfaction from companies, products' update will be promote and enlarge the boundaries of business activity will be enlarged. Further more, these companies will have a fast development via taking market share from existing provider and enhancing overall demand from customers. Because the new combinations promote products' update which means make products obsolete can make a creative destruction in economic process, further more, it can change the structure of market and can be favorable to encourage innovation and help companies to find new opportunities (n.d. 2005). According to Schumpeter's theory of business cycle, when there is a new product, process or service appear in business, it will lead to the increasing of employment and profit, and the development of economy. The second way to relate entrepreneurship to economic development is empirical approach. There is an international research consortium did the investigation of early stage entrepreneurship activity which is called Global Entrepreneurship Monitor (GEM) that measures national entrepreneurial activity since 1999. In 2002, GEM finished a report which showed that the level of national entrepreneurial activity is closely connected with pursuant levels of economic development (Reynolds et al. 2002: 7, 24). This result was regarded as an assumption that supported by various empirical studies. There is one examine which made by Nickell, Nicolitsas and Dryden (1997) can support this assumption. It pointed that an increase of the number of competitors can affect factor productivity growth positively. Which means entrepreneurship can promote developing economic, because researchers can use the number of competitors as the measure of entrepreneurship. By looking at these two approaches, it is clear that entrepreneurship can lead economies to develop. After explaining the relationship between entrepreneurship and economic development, there will be the consideration of the relationship between innovation and the growth of economy.