Entrepreneurship is essential for a country’s economic development. Entrepreneurs are few in any given population. Even in industrious economies, only a small percentage (1 to 2%) of the working population establishes a business within a year.

Nevertheless, entrepreneurs and especially innovative ones can create new jobs and increase the competitiveness of businesses in the economy.  However, the benefits of entrepreneurship are only attained if the business environment is conducive to invention.

Additionally, policymakers should be ready to deal with the possible job losses that come as a result of innovations because entrepreneurs endeavor to boost productivity.

There are various advantages and disadvantages of entrepreneurship in relation to the economy. These include;


  1. Entrepreneurs speed up structural change through replacing sclerotic and time-honored companies.

Entrepreneurs can create completely new industries and markets that become the catalysts of future growth developments.

  • Entrepreneurial activity increases the efficiency of economies and firms.

Entrepreneurs bring about the survival for the fittest effect in the economy. Weak companies are forced out of the market while strong ones survive. These existing companies are forced to use scarce resources efficiently.

  • Entrepreneurs offer new jobs both immediately and in the future.

Entrepreneurs have positive effects on employment in the long and short term but a negative effect in the medium term. The middle term joblessness is caused by the downturn or stagnation that happens when new businesses get market share from the incumbent firms. When this phase ends, suppliers have increased competitiveness which results in jobs again.

  • Entrepreneurs increase competition in the market which challenges the established firms to adapt change and become more competitive.

When entrepreneurs create new businesses, they increase competition for existing businesses. Consumers gain from the resultant reduced prices and a wide range of products to choose from.

  • They also promote economic growth through creating innovative services, products and technologies

Drastic innovations usually cause economic growth. These innovations include things like Google, Apple, eBay, Oracle, easyJet, and Microsoft. Incumbent firms are normally reluctant to innovate due to organizational inaction. On the contrary, new organizations invest heavily in finding new opportunities.

  • They improve the standards of living

Entrepreneurs bring about social change. By providing unique services and goods, they leave tradition behind and lower consumers’ reliance on outdated technologies and systems.

  • They help develop the community

Entrepreneurs often mentor other people with entrepreneurial ambitions and nurture their businesses. They also support local charities and finance in community projects. This promotes development outside their personal ventures.

  • Contribute to national income

The new innovations help create new markets and subsequently new wealth. In addition, more employment and increased incomes lead to improved national income due to increased government spending and increased tax revenue.



  1. Not many people have the determination to become entrepreneurs.

Entrepreneurs have certain common characteristics such as extraversion, internal locus of control, curious and risk-takers. These are the traits that help them become successful entrepreneurs.

  • Entrepreneurs deal with a significant possibility of failing and sometimes it is the taxpayers who bear the losses.

Some of the reasons why 40-50% businesses fail within the first five years are numerous regulatory hurdles, lack of customers, and limited access to capital.

  • Sometimes, entrepreneurs cause companies to close down which results in people losing their jobs.

Losing a job is devastating though it is a short-term situation for most people.

  • A large number of self-employed people does not usually mean that there is high level of entrepreneurial activity.

A majority of economies with many self-employed individuals are less developed.

  • Entrepreneurship cannot thrive in an economy that has too many regulations.

Buying licenses and permits can discourage entrepreneurs because it makes starting a business quite costly and makes it hard to adapt to changes.

Good and bad economic times

When an economy is flourishing, there is little motivation to support new innovative companies. When companies and people are doing well, there is no need to take chances on a new and untested product or service. Entrepreneurs normally challenge existing companies.

This might appear to be a negative thing, however, it is actually a great thing for the economy because these companies have a tendency to get comfortable and complacent to pocket their profits instead of using it to do development and research and make their businesses better.

The firms that have stagnated are usually most affected when imports come because they crumble quickly and find it hard to withstand the competition. Therefore, entrepreneurship has the advantage of pushing existing companies to be more efficient when the economy is thriving.

Entrepreneurs are also beneficial when the economy is withering. When there is a lot of unemployment and the economy is worsening or remaining the same, radical entrepreneurs could improve the economy. By creating new products of raising competition levels, new companies can increase demand, which could eventually lower unemployment by creating new job opportunities.

It would be best if entrepreneurs are continuously encouraged, whether it is in good or bad economic periods. This way all businesses will be focused and inspired to work consistently to adapt and improve.

Controlled economies like China are also appreciating the importance of enabling and encouraging entrepreneurship. China has realized that entrepreneurial activities are not a danger to the stable system anymore but rather they are essential for attaining long-lasting success and sustaining economic competitiveness.


Entrepreneurship is good for the economy. In fact, entrepreneurs are the people who shape the future. They take the present challenges and turn them into opportunities by providing solutions through innovation. Therefore, the government should encourage it by creating favorable policies and ensuring that the education system is entrepreneurial-oriented.