September, 2003

Entrepreneurship and Development: Cause or Consequence? - Working Paper

  • Christopher Coyne

    Associate Director, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
  • Peter J. Boettke

    Director, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
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While the post-WWII Keynesian dominated discussion of economic development focused on the importance of such factors as foreign aid and government planning, it is now widely agreed that the entrepreneur is the prime driver of economic progress (Kasper & Streit, 1998: 1-23; Leff, 1979). It is also accepted that the institutions that economic agents (including entrepreneurs) operate in--political, legal and culture--directly influence their activity and hence economic development (Baumol, 1990; Olson,1996). Austrians stress that entrepreneurship does not describe a distinct group of individuals, but rather, is an omnipresent aspect of human action. If the Austrian insight that entrepreneurship is omnipresent, then entrepreneurship cannot also be claimed to be the cause of economic development. There are countries that have not achieved a level of economic development consistent with their endowment, the state of technology, and the level of human capital investment in the country, yet economic actors are still coping with uncertainty and striving to be alert to hitherto unrecognized opportunities for gain. This working paper grapples with the dilemma that if entrepreneurship is omnipresent it cannot claim to be the key to development because there are countries that have not grown relative to their endowments.