Does Entrepreneurship Drive Economic Growth?

In countries with high structural unemployment, entrepreneurship has less of an impact on growth than development economists previously thought. In Haiti, where 75% of the population is unemployed, people turn to entrepreneurship as a last resort. In Port-au-Prince and throughout the country, the term "entrepreneur" has a different meaning than it does in the developed world. Entrepreneurship is borne out of necessity, not the desire to act on business opportunities.

Market in Haiti

In the absence of a formal economy, Haitians become "necessity" entrepreneurs and must take to the streets and markets to earn their living. The road outside of Port-au-Prince's Toussaint Louverture airport is lined with salesmen pushing a variety of products, from loaves of bread to toiletries. Children sell sugar cane, produce, and potable water while women walk from market to market selling products along the way. According to the GlobalEntrepreneurshipMonitor, a non-profit research organization, economic growth is not driven by these "necessity" entrepreneurs, who decrease in number as the economy develops. The key to fostering growth is to support "opportunity" entrepreneurs, who choose to start new enterprises in response to market needs.

The microfinance community, which loans to millions of entrepreneurs worldwide in an effort to alleviate poverty and promote growth in developing countries, would be wise to note the distinction between "necessity" and "opportunity" entrepreneurs. To drive economic growth, microfinance institutions should allocate more of their financial resources to individuals pursuing "opportunity" ventures, since they ultimately fulfill market needs and create jobs.

Currency Exchange store in Leogane, Haiti

Anne Hastings, CEO of Haiti's largest microfinance institution Fonkoze, believes that the key to driving economic growth in the country is to support small and medium enterprises (SMEs) — an offshoot of "opportunity" entrepreneurs. Hastings says that jobs in most developing countries come from the SME sector, but that the sector faces major funding challenges. She describes SMEs as the "missing middle": too "up-market" for microfinance lenders, and too "down-market" to secure loans from commercial banks. In an effort to bolster this job-producing sector, Fonkoze has now begun to offer larger loans of $10,000 or more. Last April, Fonkoze helped launch Zafen.org, a social lending site that helps links Haitian SMEs with donors.

Hastings says that beyond lending to SMEs, improvements in infrastructure and governance are essential for Haiti's economic growth. "Infrastructure is a huge impediment to the agriculture industry," she says. "Somewhere around 60% of exportable crop doesn't get exported because of bad roads." She adds that unreliable electricity and Internet connectivity are also problems, in addition to a shortage of skilled labor.

For Haiti and other developing countries, entrepreneurship alone cannot fuel economic growth. Haiti's new president, MichelMartelly, has called for an injection of private local and foreign investment into the country and has designs on rebuilding the agriculture and tourism industries. Whether growth or stagnation lies ahead for the battered nation remains to be seen, but its success will depend a great deal on the promotion of "opportunity" entrepreneurship, infrastructure and good governance.

Thanks to Eva Pereira / Blogs Forbes