Entrepeneurship in developing countries

Entrepreneurial activity in developing countries enhances a different kind of entrepreneurial activity as the activities occurring in the developed countries. The relationship between entrepreneurial activity and economic development changes as economies develop and GDP per capita increases. In developing countries the relation between economic development and level of entrepreneurship is negative, while in developed countries this relationship is positive. The levels of entrepreneurship are very high in the developing countries, but decrease as economies develop. The changing relation between economic development and entrepreneurship is attempted to be explained by two models, firstly by the differences in economic activities between the stages of development (Porter, 1990). The high rates on entrepreneurship in developing countries are mostly due to entrepreneurial activities that are either agricultural or very small scale of nature. As economies start to develop industries start changing. The economy becomes more manufacturing based and dependent on economies of scale. This is a huge entry barrier for entrepreneurs. Secondly, the motivation behind entrepreneurial activities provides an understanding on the changing relationship (Reynolds et al., 2001). In developing countries the motivation to entrepreneurship is often necessity-based. The lack of other employment options pushed many people into self-employment. The necessity to become self-employed will decrease, as more wage-employment options become available as a country develops. The empirical research has shown that the three phases; entrepreneurial intentions, total early-stage and established business ownership, all have negative relation with economic development. The rates of entrepreneurial activity decline as countries move to a higher stages of economic development. The more mature the phase of an entrepreneurial activity is, the less the decline in entrepreneurship rates is when moving to higher development phases. Intentions have the strongest negative relation with economic development. While levels of established businesses decrease relatively the least as economies develop. The more developed a country is the less the decline in entrepreneurial rates is as GDP per capita increases. The high rates of entrepreneurship should not be interpreted as a sign of economic development in developing countries.