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

90 Pages Posted: 18 Jun 2010  

Mirjam van Praag

University of Amsterdam - Department of Economics; Copenhagen Business School; Tinbergen Institute; IZA Institute of Labor Economics

Peter H. Versloot

University of Amsterdam

Date Written: 2008

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.

Contents: Introduction; Data: Sample Selection and Definitions; Contributions to Employment; Contributions to Innovations; Contributions to Productivity and Growth; Utility; Conclusions; References.

Keywords: Entrepreneur, entrepreneurship, self-employment, productivity, economic development, growth, employment, innovation, patents, R&D, utility, remuneration, income

JEL Classification: D24, D31, E23, E24, J21, J28, J31, L26, M13

Suggested Citation

van Praag, Mirjam and Versloot, Peter H., The Economic Benefits and Costs of Entrepreneurship: A Review of the Research (2008). Foundations and Trends in Entrepreneurship, Vol. 4, No. 2, pp. 65-154, 2008. Available at SSRN: https://ssrn.com/abstract=1625828

Mirjam Van Praag (Contact Author)

University of Amsterdam - Department of Economics ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4096 (Phone)
+31 20 525 4182 (Fax)

Copenhagen Business School ( email )

Kilevej 14A
Frederiksberg, 2000
Denmark

Tinbergen Institute

Gustav Mahlerlaan
Amsterdam
Netherlands

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Peter H. Versloot

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

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