Might standard wisdom that
only innovation matters for
economic growth be mistaken?
Historically, countries with sustained R&D expense
have grown faster than others
But, in recent years, some countries with…

significant R&D expense have faced little/no growth

others with virtually no R&D expense have faced
significant growth
Entrepreneurs & Economic Growth
Entrepreneurs are the lubricant at the core of
the growth process
The presence of entrepreneurs is a necessary
condition for growth
But entrepreneurship cannot be reduced to
technological innovation
And growth can take place even in the absence of
R&D expenditure
Entrepreneurial Types
Entrepreneurs are arbitragers who incur upfront
costs in the hope of realizing profits
They can be imitative or research-based
All incur the expense necessary to setup and
operate the business
Research-based ones, unlike imitative ones,
incur R&D costs
as their goods enjoy a (limited) monopoly position
Yet both Types Contribute to
Technological Innovation
Research-based entrepreneurs contribute
directly
Imitative entrepreneurs contribute indirectly by
threatening the rent of the research-based ones
and giving them incentives to continue innovating
to stay ahead of competition
Impact of Imitation on
Economic Growth
Increasing the imitation rate increases growth if
cost of innovation is relatively high, and
research-based and imitative entrepreneurs
exhibit different levels of productivity
In many poor or less developed countries, R&D is
costly and unproductive
imitative entrepreneurship can promote growth
Economic
Growth
positive
growth
zero
growth
negative
growth
1
0 m
0
1 1-m
more R&D
more imitation
m
= % of imitative entrepreneurs in the entrepreneurial labor force
1 – m = % of research-based entrepreneurs
Entrepreneurial
Types
When IP laws are not enforced, does it reduce or
augment research-based entrepreneurship?
lack of IP laws eliminates the advantage
enjoyed by research-based over imitative
entrepreneurs
In our model, the imitation rate would
increase
The question then becomes: When IP laws are
not enforced and imitative e-ship increases relative
to research-based e-ship, what happens to growth?
Policy Implications
Most policy intervention focuses on high-tech
because it often yields higher/faster returns
Focus on R&D may distract policy makers (&
resources) from imitative entrepreneurship when
beneficial
Governments worldwide are sinking capital in
the pursuit of entrepreneurial policies that may
have little effect on the conditions of a country
Next: The Role of Institutions
If entrepreneurs are crucial for growth, it is
important to understand what institutions are
more conducive to entrepreneurship
Individuals act very differently under different
sets of institutions
Institutions determine the relative payoffs to
various opportunities and direct entrepreneurs
toward those activities with the highest payoffs