Denoy, Hans-Dominic December 19 2017Maglanoc, AngelaEnglish for Academic and Professional Purposes Grade 12 – DarwinEntrepreneurshipECONOMIC DEVELOPMENT THROUGH ENTREPRENEURSHIPINTRODUCTIONEconomic development is a primary objective of every nation and uses that process to improve the political side and raising socio economic capabilities and well-being of its people. Economic development can be approached in many different ways such as different theories and models that attempt to create the perfect solution to improve a nation’s economic development. Economic development also focuses on recruiting business operations Moreover, economic development and entrepreneurship are related to one another simply because entrepreneurship is very crucial to any economy. Economic development focuses on the recruitment of business operations to a region. Since entrepreneurship is beneficial for economic development and growth a good relationship between the two is needed. This is accepted everywhere in the world that entrepreneurship is the solution not only to low economic growth but in reducing unemployment as well. Entrepreneurship is the process where an individual or a group creates a business opportunity wherein they have to capacity and willingness to face any risks to make a profit, these people are called entrepreneurs. According to Joseph Schumpeter, he described entrepreneurs as innovators who generate new ideas to create profitable outcomes.
This innovation often involves new and old organizations as a way of having new opportunity.THESIS STATEMENTEntrepreneurship could have a significant impact in economic development. Economic development can be achieved through entrepreneurship by following or by getting ideas from theories and systems for economic growth and development. THEORYMERCANTILISMMercantilism is an economic system that was used in the 1500’s by European countries, specifically Spain, France, and England. In mercantilism, there is a mother country, and this mother country creates colonies in other countries or places that are rich in raw materials. They would collect these raw materials and turn them into manufactured materials. These manufactured materials would now be sent back to their colonies and sold to the people that reside there. The colonies could not trade with each other.
Their raw materials should be sent only to the mother country. This economic system helped the Big 3 (Spain, England, and France) gain power and control colonies. This provided economic growth for the said countries because they exclusively receive the raw materials, produce specific manufactured goods, and sell the manufactured goods.We could apply mercantilism in today’s world by using the concept of exclusivity.
Producing manufactured goods using exclusive materials and selling them outside the country will not only help the entrepreneur’s business but also its country. SCHUMPETER’S THEORY OF ECONOMIC DEVELOPMENT Joseph A Schumpeter created the theory of economic development wherein he assumes that there is a perfect competitive economy which is in stationary equilibrium. This equilibrium is known as “CIRCULAR FLOW”, wherein economic activity produces itself at a constant rate through time. According to Schumpeter, defined economic development as a “spontaneous and discontinuous change in the channels of the circular flow, disturbance of equilibrium. Which forever alters and displaces the equilibrium state previously existing”. These are only possible due to its static setting however changes to development can be made in the form of innovations.
There are six main features that describe schumpeter’s theory of economic development.INNOVATIONS Innovations are changes of an existing product that are improved to meet the needs of a certain which will be introduced by the entrepreneur that can lead to further development. 2. ROLE OF INNOVATORS According to Schumpeter’s theory, the role of an innovator is assigned to the entrepreneur. This is a key part in Schumpeter’s analysis because as a innovator it is the entrepreneurs responsibility to produce something new and to use the funds efficiently. 3. ROLE OF PROFITS Schumpeter states that “An entrepreneur innovates to earn profits. Profits are conceived “as a surplus over costs a difference between the total receipts and outlay as a function of innovation.
” 4. BREAKING THE CIRCULAR FLOW Breaking the circular flow means entrepreneurs that continue to innovate new products are supported by bank-credit expansion, once it becomes successful and other entrepreneurs will begin to follow. Succeeding on innovation in a certain field will lead to other successful innovations in other fields as well.
5. BUSINESS CYCLE According to Schumpeter’s business cycle, these are fluctuations that occur within the economic activity. This is only known as “crisis” since it interrupts the development of the economy. This cycle process begins when a group of innovations creates a disconnection in the economy, this causes an overwhelming flow of new products.
When the market begins to get flooded with new products, the prices starts to fall and profits decline. The business cycle begins to go below to equilibrium and reaches the point of depression which lead to a new start for the economy.. 6. PROCESS AT THE END OF CAPITALISM Schumpeter stated that capitalism would destroy itself due to the continuous innovations made by entrepreneurs.ADAM SMITH’S THEORY OF ECONOMIC DEVELOPMENTSUMMARY Theories for economic development works perfectly with entrepreneurship. This is because it touches the subject of being able to offer services, product, etc. and gaining profit from it.
For mercantilism, the exclusivity of resources is being used as an advantage to produce manufactured goods, thus making that product rare in some way and may have high demand. For Schumpeter’s theory of economic development, innovations are used to keep the circulation which also means equilibrium. In entrepreneurship, it is important to innovate since entrepreneurs have a more creative approach to businesses. Failure to innovate is considered an internal risk in entrepreneurship, that is why innovation is important.
If there are no innovations, the state of an economy will be stagnant of would decline, and this would stop the circulation.