Entrepreneurship and Economic Freedom- What makes countries more entrepreneur-friendly, and what can we learn from it?

Burak Erkut
Professorship of Managerial Economics, Faculty of Business and Economics, Dresden University of Technology

If you are an entrepreneur, or aim to become one, you know it already – you need a good idea, or at least know someone who has a good idea, and is willing to be part of your entrepreneurial team. Turning this idea into a business opportunity with your own capabilities, skills and talents would be great – but is that all what you need for becoming an entrepreneur?

Experts of economics and entrepreneurship spend a lot of time and effort to identify factors that can influence the competitiveness of countries and help entrepreneurs to be active and drive the economy. They either ask experts on their opinions, or use the hard facts to calculate indices – they even combine the two for giving a broader overview.

I will show you briefly, how the competitiveness of an economy also corresponds to its degree of economic freedom – and what you can learn from it as a (potential) entrepreneur, or someone who aims the entrepreneurial change. In my research, I focused on what experts think of conditions and opportunities for entrepreneurship in their own countries, and how we can guess the degree of economic freedom in a country with this information.

It is useful to reduce huge amounts of data (such as the opinion survey of experts called Global Entrepreneurship Monitor, National Experts Survey) for better interpretation. Thankfully, methods of data mining allow this to explain how economies differ from each other in terms of competitiveness. By doing this, I have find out that variation between the competitiveness of economies can be explained by two factors: The framework of entrepreneurship and competition, and the discovery of opportunities by new entrepreneurs.

The second factor is straight-forward: Some economies may contain more ideas than entrepreneurs who exploit these; and NGOs, policy makers, universities as well as professional associations (can) work toward helping the potential entrepreneurs to exploit these opportunities. The so-called entrepreneurial universities can be especially useful for serving the society by offering a platform to discover entrepreneurial opportunities and build upon the necessary skills. But also sufficient debt funding and equal opportunities for men and women belong to this factor, meaning that their increase also result in an increase in the competitiveness and economic freedom of the country.

But how about the framework of entrepreneurship and competition? This factor consists of what an economy offers to you as a (potential) entrepreneur, once you aim to get your business started. Among them, the effectiveness of the intellectual property legislation (IPL) seems to have the highest explanatory power, meaning that it can explain the highest share of variation between the groups of economies based on their competitiveness. Producing simple products does not necessarily require an IPL, but the more a country is open for foreign direct investments and accumulates new technologies, the more developed and innovative the products will be, which requires a strong IPL so that your ideas can be protected from imitations.

The time required to start the operation of a new business can change an economy’s attractiveness for entrepreneurs, together with the quick access to utilities such as gas, water, electricity, sewer – meaning that all the necessary procedures must happen as quick as possible so that you can focus on your actual duty a.s.a.p.: being an entrepreneur!

An economy can be even more entrepreneur-friendly, if the government can be reached by contacting a single agency once you require government assistance regarding all these procedures. This is a clear plus for potential entrepreneurs, it saves time to wait until the necessary procedures are done, and does not restrict your entrepreneurial freedom – who wants to deal with bureaucratic procedures lasting for weeks anyway?

Of course, these are all the steps that are necessary once you have a tendency to become an entrepreneur. Although in our theoretical models a world without entrepreneurship is possible, the real world has many opportunities that are still not discovered, because just like the economies themselves, also human preferences and cognition evolves over time. This is what makes economies attractive to analyze for researchers like myself, at the same time being a challenge for policy makers to make sure that they enable entrepreneurial discovery – something which cannot happen within the public sector, but can only be done with individual initiative and discovery of opportunities using the unique knowledge every individual possesses in an economy.

References:
Erkut, B. (2016). Structural Similarities of Economies for Innovation and Competitiveness – A Decision Tree Based Approach. Studia Oeconomica Posnaniensia, DOI:10.18559/SOEP.2016.5.6

Erkut, B. (2016). Entrepreneurship and Economic Freedom: Do Objective and Subjective Data Reflect the Same Tendencies? Entrepreneurial Business and Economics Review, DOI:10.15678/EBER.2016.040302

 

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