Role of Entrepreneurs in Economic Development

The entrepreneurs with their ability to scan, analyze and identify opportunities in the environment transform them into business proposition through creation of economic entities.

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They by channelizing the resources from less productive to move productive use crate wealth. Through efficient and effective utilization of national resources, they act as catalysts for economic development and agents of social transformation and change.

According to Joseph Schumpeter, the rate of economic progress of a nation depends upon its rate of innovation which is turn depends on rate of increase in the entrepreneurial talent in the population.


According to Meir and Baldwin, development does not occur spontaneously as a natural consequence when economic conditions in some sense are right.

A catalyst is needed which results in entrepreneurial activity to a considerable extent. The diversity of activities that characterizes rich countries can be attributed to the supply of entrepreneurs. They play a vital role for the economic development of a country in the following ways.

1. Formation of Capital:

Entrepreneurs by placing profitable business proposition attract investment to ensure private participation in the industrialization process.

The otherwise idle savings are channelized for investment in business ventures which in turn provides return. Again the savings are invested giving a multiplier effect to the process of capital formation.

2. Balanced Regional Development:


The entrepreneurs always look for opportunities in the environment. They capitalize on the opportunities of governmental concessions, subsidies and facilities to set up their enterprises in undeveloped areas.

The setting up of still plant at Tata nagar, Reliance Petrochemicals at Jamnagar (Gujarat) have resulted in the development of Good Township and peripheral regional development. Thus entrepreneurs reduce the imbalances and disparities in development among regions.

3. General Employment:

This is the real charm of being an entrepreneur. They are not the job seekers but job creators and job providers. With the globalization process the government jobs are shrinking leaving many unemployed.

In the circumstances, the entrepreneurs and their enterprises are the only hope and source of direct and indirect employment generation.


Employment is generated directly by the requirement of the large enterprises and indirectly by ancilliariation and consequential development activities.

4. Improvement in Standard of Living:

Entrepreneurial initiative through employment generation leads to increase in income and purchasing power which is spent on consumption expenditure. Increased demand for goods and services boost up industrial activity.

Large scale production will result in economies of scale and low cost of production. Modern concept of marketing involves creating a demand and then filling it.

New innovative and varying quality products at most competitive prices making common man’s life smoother, easier and comfortable are the contribution of entrepreneurial initiative.

5. Increase in per Capita Income:

Entrepreneurs convert the latent and idle resources like land, labor and capital into goods and services resulting in increase in the national income and wealth of a nation.

The increase in national income is the indication of increase in net national product and per capita income of the country.

6. National Self-reliance:

Entrepreneurs are the corner stores of national self-reliance. They help to manufacture indigenous substitutes to imported products which reduce the dependence on foreign countries.

There is also a possibility of exporting goods and services to earn foreign exchange for the country. Hence, the import substitution and export promotion ensure economic independence and the country becomes self-reliance.

7. Planned Production:

Entrepreneurs are considered as economic agents since they unite all means of production. All the factors of production i.e., land, labor, Capital and enterprise are brought together to get the desired production.

This will help to make use all the factors of production with proper judgment, perseverance and knowledge of the world of business. The least combination of factors is possible avoiding unnecessary wastages of resources.

8. Equitable Distribution Economic Power:

The modern world is dominated by economic power. Economic power is the natural outcome of industrial and business activity. Industrial development may lead to concentration of economic power in few hands which results in the growth of monopolies.

The increasing number of entrepreneurs helps in dispersal of economic power into the hands of many efficient managers of new enterprises. Hence setting up of a large number of enterprises helps in weakening the evil effects of monopolies.

Thus, the entrepreneurs are key to the creation of new enterprises that energies the economy and rejuvenate the established enterprises that make up the economic structure.

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