Economic Development, edited by Wim Naudé, Palgrave Macmillan in
association with the United Nations University – World Institute for
Development Economics Research (UNU-WIDER), 2011, 373 pages.
This collection of essays from various
scholars takes stock of the body of knowledge on the role of
entrepreneurship in economic development.
Relevance of the book
While private sector development (PSD) has
become an important focus of development programmes, research on
entrepreneurship has until recently mostly been separate from
development economics: As one of the book contributors highlights,
“(t)he explosion of interest in entrepreneurship has been sudden and has
demanded significant investigation to uncover its true relationship
with economic development”, especially for developing countries, where
“ironically its dynamics are least clear”. With agencies increasingly
looking for data and evidence to inform programme design and justify
their PSD budgets, the book therefore addresses a very timely question.
Some of the most relevant insights are summarised below.
New data on entrepreneurship and how to use them
How to measure entrepreneurship and the
business environment is the first main subject of the book: One reason
why the empirical studies on entrepreneurship have often been
inconclusive are the methodological difficulties attached to measuring
entrepreneurship – including the lack of comparable data across
countries and time (Naudé 2010).
Two critical initiatives to produce comparable data have emerged in
recent years, and are among the main data sources used in the book: The Global Entrepreneurship Monitor (GEM) and the World Bank Group Entrepreneurship Survey (WBGES).
However, as Sameeksha Desai points out, it
is important to consider that these indices reflect different kinds of
entrepreneurship and hence may yield different research results: GEM
data risk to overestimate entrepreneurship activities as they measure
entrepreneurial intent, whereas the WBGES is limited to formal sector
entrepreneurship, excluding a large part of economic activity in
developing countries. She therefore cautions that these measures of
entrepreneurship are only useful if tied to the economic development
context of a country, carefully applied and interpreted.
New insights on the impact of business environment reforms
Using data from the WBGES, Doing Business Reports and Kaufmann governance indicators
to analyse the impact of business environment reforms, Klapper, Lewin
and Delgado find that higher business entry rates are associated with
cheaper, more efficient business registration procedures, and better
governance. Studying the impact of modernised business registry in
particular, they find a positive relationship between the implementation
of electronic registration and an increase in the number of registered
businesses. They conclude that these variables should be taken into
account in the design, implementation and evaluation of PSD programmes.
Conflict-affected environments: special challenges to measuring business environment constraints
DCED member agencies are increasingly
operating in conflict-affected environments (CAEs). How to measure the
business environment in such contexts is therefore another relevant
topic addressed by the book. Scrutinizing one of the most widely used
benchmarking of the formal regulatory environment, the WB Doing Business
indicators, Chiara Guglielmetti concludes they do not adequately
capture the various economic and non-economic barriers to
entrepreneurship in fragile states, which are “harsher and more
diversified” than in other contexts. A similar view is also expressed in
the DCED’s Key resources for PSD practitioners in CAEs, which specifies limitations of the DB methodology for CAEs, based on the Doing Business review
of the WB’s Independent Evaluation Group. The implication is that for
economic assessments in CAEs, the Doing Business indicators should be
complemented by other diagnostic tools to inform programme design.
Institutional reform - necessary but not sufficient for entrepreneurial development
The two remaining parts of the book provide
insights into the effect of policies and institutions on
entrepreneurship, and the role of active government support. A common
thread is that institutional reform may only be necessary but not
sufficient for entrepreneurial development.
For example, José Ernesto Amorós examines
the relationship between different kinds of entrepreneurship (GEM data)
and the quality of governance (WB worldwide governance indicators).
The results are inconclusive, but they seem to suggest that the quality
of institutions is positively related to opportunity driven
(productive) entrepreneurship), which – as Wim Naudé establishes, drives
economic growth – and has negative effects on necessity-based
(unproductive) entrepreneurship. However, good institutions seem not to
be sufficient to improve entrepreneurship.
For Amorós the policy implication is that
developing countries need to make the promotion of productive,
innovation-based entrepreneurship a key concern of their policy agenda
to achieve economic development. In terms of the kind of policies
required, Wim Naudé’s finding that governance and start-up costs are not
a significant determinant of opportunity entrepreneurship suggests that
“regulatory reform (…) may not result in the type of entrepreneurship
most beneficial to growth”. He concludes that pro-active state-actions
may be required.
Industrial Policy as a solution?
This view is supported by William Lazonick,
who argues that a developmental state subsidizing and protecting infant
industries is required to create innovative firms and economic growth.
This touches on the resurgent debate on the role industrial policy for
PSD – a collection of resources and country studies on this theme can
also be found on the DCED website.
A missing piece in the book, which is mainly
concerned with cross-country studies, is country- and
programme-specific evidence (including but not restricted to regulatory
reforms). Overall however, it is encouraging that panel data on
entrepreneurship are becoming more available and are used to inform the
process of identifying its determinants and impacts. Many of the book
contributions are therefore worthwhile reading for those involved in
promoting institutional environments and specific policies conducive to
Melina Heinrich, 17 January 2011
Daniel Kaufmann et.al. (2008):
Governance Matters VII. Aggregate and Individual Governance Indicators
1996-2007, World Bank Policy Research Working Paper No. 4654. http://go.worldbank.org/3LL5GQLAA0
DCED (2010): Private Sector Development in Conflict-Affected Environments. Key resources for Practitioners. http://www.enterprise-development.org/download.aspx?id=1627
Independent Evaluation Group (2008): Doing Business: An independent evaluation, The World Bank, Washington, DC. http://www.businessenvironment.org/dyn/be/docs/205/db_evaluation.pdf
The World Bank Doing Business Reports: http://www.doingbusiness.org/reports
The World Bank Group Entrepreneurship Survey: http://go.worldbank.org/T8G73Z9ZM0
The World Bank Group Worldwide Governance Indicators:http://info.worldbank.org/governance/wgi/index.asp
Wim Naudé: Promoting Entrepreneurship in Developing Countries: Policy Challenges, UNU-Wider Policy Brief Number 4, 2010. http://www.wider.unu.edu/publications/policy-briefs/en_GB/unupb4-2010/
CAE - Conflict-Affected Environment
GEM - Global Entrepreneurship Monitor
PSD - Private Sector Development
WB - World Bank
WBGES - World Bank Group Entrepreneurship Survey