13+ Roles Of Entrepreneurship in Economic Development Of 2024

10 Roles of Entrepreneurship in Economic Development MBA Notes

Reviewed by: Jayprakash Prajapati | Last updated on December, 15, 2023

Roles of Entrepreneurship in Economic Development MBA Notes, Entrepreneurship has been identified by many economists as an important force in the process of industrialization in particular and economic development in general. Economic development essentially means a change. but at the same time, it is very difficult to define precise economic development.

should be realized that the term economic development does not express the idea of the total development of society. It focuses on only one aspect. And a dimension of general development. Economic development can be defined as a step towards even more efficient and differentiated ways of supplying people with requirements for survival and improvement. 10 Roles of Entrepreneurship in Economic Development MBA Notes.

The entrepreneur is the key to the creation of new enterprises. Activate the economy and rejuvenate established enterprises that make up the economic structure. Entrepreneurs initiate and sustain the process of economic development in the following 10 ways:

What is the Role of Entrepreneurs in Economic Development.

1. Capital formation
2. Improvement in per capita income
3. Improvement in living standards
4. Economic independence
5. Backward and forward links
6. Generation of Employment
7. The exploitation of locally available resources & entrepreneurship
8. Balanced Regional Development
9. Reducing Unrest and Social Tension Amongst Youth
10. Innovations in Enterprises

1. Capital formation.

Entrepreneurs mobilize the idle savings of the public through the issues of industrial securities. Investment of public savings in industry results in productive utilization of national resources. Rate of capital formation increases which is essential for rapid economic growth. Thus, an entrepreneur is the creator of wealth.

2. Improvement in per capita income.

Entrepreneurs explore opportunities and exploit them. They convert talent and idle resources like land, labor, and capital into national income and wealth as goods and services. They help increase the net national product and per capita income in the country, which are important indicators for measuring economic growth.

3. Improvement in living standards.

Entrepreneurs set up industries that overcome the scarcity of essential commodities and introduce new products. The production of goods on a large scale and the manufacture of handicrafts, etc., help in improving the standard of living of a common man in the small scale sector. Offer goods at these low costs and increase consumption diversity.

4. Economic independence.

Entrepreneurship is essential for national self-reliance. Industrialists help to manufacture indigenous substitutes of hitherto imported products thereby reducing dependence on foreign countries. Businessmen also export goods and services on a large scale and thereby earn scarce foreign exchange for the country. Such import substitution and export promotion help to ensure the economic independence of the country without which political independence has little meaning.

5. Backward and forward links.

An entrepreneur initiates change in which there is a chain reaction. There are many backward and forward linkages in establishing an enterprise. For example, the setting up of a steel plant creates many ancillary units, and the demand for iron ore, coal, etc. expands. There are backward relationships. By increasing the supply of steel, the plant facilitates machine manufacturing, tube making, vessel manufacturing, and the development of other such units.

Entrepreneurs create an atmosphere of enthusiasm and express a sense of purpose. They give an organization its momentum. Entrepreneurial behavior is critical to the long-term vitality of every economy. The practice of entrepreneurship is as important for established firms as it is for newcomers.

6. Generation of Employment.

At the beginning of the seventh five-year plan, the backlog of unemployment was estimated to be around 44 million persons. At present, the number of unemployed in the country is far greater than what it was during 1985. Emphasis on modernization which usually results in automation, use of high technology, and technology up-gradation initiated during the 1980s and structural changes introduced by the Government during the 1990s are likely to give much rise to capital-intensive rather than labor-intensive industry.

It is feared that there will be very few additional job opportunities within the fold of organized public and private sectors. Most of the job opportunities in the future are likely to be emerging from the informal and unorganized sectors of the economy. Entrepreneurship development training which helps in strengthening the informal and unorganized sector is expected to motivate enterprising people to opt for self-employment and entrepreneurial career. It will, therefore, help in solving the problem of increasing unemployment to some extent.

7. The exploitation of locally available resources and entrepreneurship.

India is considered rich in natural resources. Despite nearly five decades of planned development, a large number of states remain economically backward. Some large-scale industries started by out-of-state entrepreneurs in economically backward regions can help as a model of pioneering efforts. But ultimately the real strength of industrialization in backward areas depends on the involvement of local entrepreneurship. Activities: Increased activities of local entrepreneurs will also result in construction. Use of abundant available local resources.

8. Balanced Regional Development.

Medium and large-scale industries can only be started with a huge investment that is either available with well-established industrial houses or needs to be drawn from the exchequer. Also, promoting such industries does not help reduce inequalities of income and wealth. On the other hand, an important advantage of small-scale industries is that they can be started with little financial and resources and little or no previous experience or entrepreneurial background.

9. Reducing Unrest and Social Tension Amongst Youth.

Many problems associated with youth unrest and social tension are rightly considered to be due to youth not being engaged in productive work. In the changing environment where we are faced with the problem of recession in wage employment opportunities, the alternative to a wage career is the only viable option. the country is required to invert the youth with latent entrepreneurial traits from wage careers to self-employment careers. Such an alternate path through  entrepreneurship could help the country in defusing social tension and unrest amongst youth

10. Wealth Creation and Redistribution

Successful entrepreneurs generate wealth not only for themselves but also for their communities. They invest in various sectors, leading to the redistribution of resources and a more equitable distribution of wealth.

11. Innovations in Enterprises.

Business enterprises need to be innovative for their survival and better performance. It is believed that smaller firms have a relatively higher necessity and capability to innovate. The smaller firms do not face the constraints imposed by a large investment in existing technology. Thus they are both free and compelled to innovate. The National Science Foundation, an organization in the USA found that small companies produce four times more innovations per research dollar than do bigger companies. Entrepreneurship development programs are aimed at accelerating the pace of the small firm’s growth in India. an increased number of small firms is expected to result in more innovations and make the Indian industry compete in the international market.

12. Foreign Direct Investment (FDI) Attraction

Countries with thriving entrepreneurial ecosystems often attract foreign direct investment. Entrepreneurs provide insights into local markets and establish connections that can make a nation more attractive to international investors.

13. Education and Skill Development

Entrepreneurs often collaborate with educational institutions to bridge the gap between academic knowledge and practical skills. This synergy contributes to a more skilled and adaptable workforce.

14. Nurturing Small and Medium Enterprises (SMEs)

Entrepreneurs provide a foundation for the growth of small and medium enterprises, which are vital contributors to economies worldwide. These enterprises drive local economies and create a resilient business environment.

15. Government Revenues and Taxation

Entrepreneurs contribute to government revenues through taxes, which can then be invested in public services and infrastructure. A vibrant entrepreneurial ecosystem can boost a nation’s financial resources.

Executive Summary.

Entrepreneurship is a driving force behind economic development. From job creation and innovation to poverty alleviation and environmental sustainability, entrepreneurs play multifaceted roles that shape the future of economies worldwide.


How does entrepreneurship impact job creation?

Entrepreneurship leads to the establishment of new businesses, requiring manpower and thereby reducing unemployment rates.

What role does innovation play in entrepreneurship?

Innovation is at the core of entrepreneurship, driving the creation of new products, services, and markets.

Can entrepreneurship reduce poverty in rural areas?

Yes, entrepreneurship brings economic activities to rural areas, creating jobs and alleviating poverty.

How do entrepreneurs contribute to environmental sustainability?

Entrepreneurs develop sustainable products and practices that minimize environmental impact.

What are the risks associated with entrepreneurship?

Entrepreneurship involves risks such as market uncertainty, financial challenges, and the need for continuous adaptation.

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