Foundations and Trends® in Entrepreneurship > Vol 6 > Issue 3

The Relationship between Entrepreneurship and Economic Development: Is It U-Shaped?

By Sander Wennekers, EIM Business and Policy Research, the Netherlands, | André van Stel, EIM Business and Policy Research | Martin Carree, Maastricht University | Roy Thurik, Erasmus University Rotterdam

Suggested Citation
Sander Wennekers, André van Stel, Martin Carree and Roy Thurik (2010), "The Relationship between Entrepreneurship and Economic Development: Is It U-Shaped?", Foundations and Trends® in Entrepreneurship: Vol. 6: No. 3, pp 167-237.

Publication Date: 06 Jul 2010
© 2010 S. Wennekers, A. van Stel, M. Carree, and R. Thurik
Government programs and public policy,  Small business and economic growth
L26 entrepreneurshipJ24 human capitalM13 new firms and start-upsO14 industrializationO31 innovation and invention
EntrepreneurshipSelf-employmentBusiness ownershipBusiness start-upsEconomic developmentU-shapeL-shapeEntrepreneurshipPublic policyLabor economics

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In this article:
1 Introduction 
2 The Long Decline in the Rate of Independent Entrepreneurship 
3 A Revival of Independent Entrepreneurship 
4 The Revival of Entrepreneurship: An Interpretation 
5 Conclusions and Policy Implications 
A Appendix: Specification of the Carree et al. Model 


Following a centuries-long decline in the rate of self-employment, a discontinuity in this downward trend is observed for many advanced economies starting in the 1970s and 1980s. In some countries, the rate of self-employment appears to increase. At the same time, crosssectional analysis shows a U-shaped relationship between start-up rates of enterprise and levels of economic development. We provide an overview of the empirical evidence concerning the relationship between independent entrepreneurship, also known as self-employment or business ownership, and economic development. We argue that the reemergence of independent entrepreneurship is based on at least two 'revolutions'. If we distinguish between solo self-employed at the lower end of the entrepreneurship spectrum, and ambitious and/or innovative entrepreneurs at the upper end, many advanced economies show a revival at both extremes. Policymakers in advanced economies should be aware of both revolutions and tailor their policies accordingly.

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Table of contents:
1. Introduction
2. The long decline in the rate of independent entrepreneurship
3. A revival of independent entrepreneurship
4. The revival of entrepreneurship: an interpretation
5. Conclusions and policy implications
Appendix: specification of the Carree et al. model

The Relationship between Entrepreneurship and Economic Development

The Relationship between Entrepreneurship and Economic Development summarizes and updates the empirical evidence and presents the main lines of reasoning behind the relationship between economic development and entrepreneurship. It is essential reading for policy makers because it provides them with a benchmark how to evaluate their country's specific entrepreneurship - economic development ratio as well as with an understanding what the developments are and how to influence them. The Relationship between Entrepreneurship and Economic Development focuses on the occupational notion of entrepreneurship. It reviews the long historical decline in the rate of independent entrepreneurship, investigates the evidence supporting the revival of independent entrepreneurship, interprets the various findings including to what extent the shift from the so-called 'managed' to the 'entrepreneurial' economy is a labor market phenomenon and to what extent these new push and pull factors in the labor market share the stage with a changing relationship between entrepreneurship and innovation.