Thursday, November 24, 2011

Infrastructure and education are key to unleashing entrepreneurship

Ghani, Kerr and O’Connell argue it is entrepreneurs who create jobs and there is a “strong link between initial levels of young and small firms and subsequent job growth”. They maintain that even though there are not enough entrepreneurs in India (and other South Asian countries) for its stage of development, cities and states that have embraced entrepreneurship have created more jobs than those that have not. So, entrepreneurs create jobs. But, what creates or attracts them? Its physical infrastructure and an educated workforce. It is especially true for manufacturing and services sectors. The authors argue that “supportive industrial structure for input and output markets are strongly linked to higher entrepreneurship rates”.

The authors define entrepreneurship as the presence of young establishments, less than three years old, in the formal manufacturing sector. There area also other characteristics of entrepreneurship such as self-employment, firm size, ownership, entry and innovation.


Some of the findings are:

  • Their estimate derived from Indian data suggests that a ten percent increase in initial entrepreneurship in a region-industry in 1989 was associated with a 1.3 percent higher rate of employment growth to 2005.
  • While infrastructure and an educated workforce encourage entry to entrepreneurs, strict labor regulations discourage them to enter the formal sector.
  • Start-ups are more frequent in cities with common labor needs and have customer-supplier relationships with cities’ incumbent businesses.
  • For jobs creation, policymakers should focus on promoting entrepreneurship locally. Since educated labor force is a crucial factor for the entry of new entrepreneurs, establishment of local colleges and education institutions should be promoted. [Just look at the number of start-ups and the growth of education institutions in Nepal. They have moved positively and youths are at the forefront of this phenomena.] Similarly, infrastructure such as roads, electricity and telecommunication are prerequisites for enticing entrepreneurs.
  • South Asian countries need to work more on developing infrastructure, improving education, lowering entry costs, reducing regulatory burdens, and developing financial access to unleash business creation and job growth.
  • It is estimated that almost one million new workers will join the labor force every month for the next two decades in India.