February 3, 2005

The Role of Institutions in Entrepreneurship: Implications for Development Policy

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The last fifty years of development aid have not been rewarded with success. Part of the reason for this failure has been the focus on macro approaches and policies, which did not emphasize the local institutional context faced by economic agents. In the last decade, the notion of "institutions" has come to the forefront of policy advice. At the same time however, the role of institutions in economic development remains unclear. As a result, it is being challenged by those who think that institutions are just the fad of the moment. This Policy Primer explains how institutions are vital to the expansion of entrepreneurial activity, which is at the heart of the process of development and economic growth. What is generally missing in countries with lackluster economic performance is not entrepreneurship as such but the right institutional context for entrepreneurship to take place and to be socially beneficial. What matters for development are the rules that individuals follow and how these rules are defined and enforced.

Citation - Chicago Style

Sautet, Frédéric. "The Role of Institutions in Entrepreneurship: Implications for Development Policy." Mercatus Policy Series Policy Primer, No. 1. Arlington, VA: Mercatus Center at George Mason University, February 2005.