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Essay: The Impact of Entrepreneurship on Social, Economic and Environmental Sustainability

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  • Published: 1 April 2019*
  • Last Modified: 2 August 2024
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The rise of Globalisation in the 1980s paved the way for the growth of entrepreneurship in the world. Analysts now see entrepreneurship as an asset to generate the national economy and the backbone of modern economics of the society. As time went by, several works of literature highlighting the importance of entrepreneurship to the economic development of countries were published, thus enriching the study of such subject (Matos and Hall, 2007; Schumpeter, 1934, 1942). Scientists and researchers have provided numerous definitions for entrepreneurship. However, the most suitable definition for this essay was coined by Venkataraman (1997) who defines it as “a scholarly field [that] seeks to understand how opportunities to bring into existence future goods and services are discovered, created, and exploited, by whom, and with what consequences” (p.119). This definition highlights the importance of entrepreneurship for the future sustainable development of the society. Entrepreneurship impact goes beyond mere economic performance to influence the social and environmental situations in the society. For instance, an entrepreneur’s innovativeness can impact society in multiple areas – such as enhancing its economy or solving urgent needs for the population -, without harming other areas such as the environment. This is commonly referred to as a “dark green” policy whereby a provided solution benefits the society without damaging the planet (Freeman, Pierce and Dodd, 2000). This essay will thus analyse, assess and engage with a discussion on the impact that entrepreneurship has on the three pillars of sustainability- Social, Economic and Environment. Secondly, this paper will review the interconnection between entrepreneurial activity and the economic, social human development and ecology using Granger’s causality tests (Dhahri and Omri, 2018).

Positive impact on the society: Economic, Social and Ecological

● Employment Opportunities and standard of living

The impact on the economy is estimated using the neoclassical function of capital and labor. However, the growth of the modern economy cannot be fully explained without “knowledge” along with traditional factors capital and labor (Dhahri and Omri, 2018). Joseph Schumpeter famously described entrepreneurship as “the process of initiating radical structural change and growth through creative destruction” (Schumpeter, 1942). To paraphrase, Schumpeter means that entrepreneurs help in creative destruction by converting a new idea to a successful business, thereby destroying the obsolete (inefficient) for the new (efficient). He also says that innovative entrepreneurship is key to a healthy economy and its absence would hinder the growth of technology and economy (Cumming, Johan and Zhang, 2014).

Furthermore, new entrepreneurial ventures directly influence the standard of living by creating employment opportunities, which in turn will improve the economic and human condition. Many economists believe the growth of the United States is at the back of entrepreneurs (The Economist, 2009). Governments of developing nations like India are encouraging their youth to take up entrepreneurship to combat the unemployment rate in the society. New enterprises open door to both, direct and indirect, employment opportunities.  In effect, more jobs would inherently increase customer expenditure, thus improving the overall condition of the society. The story of an entrepreneur has a cascading effect (Trenchard, 2015) whereby a new range of beneficial stakeholder would emerge. In a nutshell, entrepreneurship provides a fair share of entry-level jobs which don’t require training for an unskilled worker and produce skilled and experienced workers to larger industries.

● Increased productivity and competition

As a result of its growth, entrepreneurship increases the level of competition as many new entrepreneurs enter the market. Competition would inherently make all the players in the market re-evaluate their strategy. In turn, customers would greatly benefit from growing competition, for companies would have to produce qualitatively, or reduce the price of their offers to have an adverse effect on the monopolies and oligopolies in the marketplace (i.e. a competitive advantage). Moreover, competition would induce improved and more efficient operations, as well as an efficient use of resources thus entailing costs reduction. In turn, gross domestic product (GDP) will grow, thus benefiting society as a whole (UKEssays, 2013).

● Market Dynamics and Innovation

Entrepreneurs generally answer to market demand by providing a solution (i.e. a product or a service) to a current issue in the society. Such entrepreneurs are denominated as “opportunity entrepreneurs” (Entrepreneur, n.d.) who inherently play a vital role in fostering economic growth in that they open new avenues in terms of goods and services for the people. On the other hand, “necessity entrepreneurs” create a business out of necessity, the contribution of which is not to be undermined. Opportunity Entrepreneurs are pursued by the “Pull” factor to gain more wealth or attain personal gain while necessity entrepreneurs are motivated by the  “push” factor for economic survival  (Mersha, Sriram and Hailu, 2018). Overall, both of them contribute to reaching sustainable development of the society, especially when an entrepreneur adds more innovation to the market (e.g. Elon Musk).

● Green initiatives

York and Venkataraman (2010) write about entrepreneurship as the future to resolve environmental issues such as climate change, or preservation of the ecosystem through corporate social responsibility (CSR). They go on to say that today’s world of entrepreneurs takes on the global project to reduce dependencies on non-renewable energy while developing renewable equivalents (York and Venkataraman, 2010). This naturally creates awareness regarding the negative impact the plunder of natural resources has, thus paving the way for innovative measures to combat growing environmental issues such as global warming. In that aspect, entrepreneurship is seen as fostering sustainable measures for the future thanks to promising new ventures.

● Innovation

Individuals and/or groups who become entrepreneurs generally have the capacity to provide innovative solutions. To some extent, innovation is thus one of the key aspects and pre-requisite for entrepreneurship. In that sense, entrepreneurial ventures are incubators of innovations, for their discoveries often end up as novel products/services on the market. Creating an innovative product or service thus becomes a unique selling point (USP) which makes them stand out from their competitors. The chances of success in the market are high when the business is different and better than benchmarks. On the whole, entrepreneurship nurses innovation which in turn enhances the economy, human development and the environment.

Interconnection between entrepreneurship and three pillars of sustainable development

In this section, the relationship between entrepreneurship and the three pillars of sustainable development will be explained using a VECM panel using Granger’s representation theory (Engle and Granger, 1987).  The vector error correction model (VECM) helps to determine the cointegrating relationship between the entities along with the interpretation of long-term and short-term equation (Stats.stackexchange.com, 2013). VECM panel The model was tested with data from  20 developing countries between the periods of 2001 until 2012 (Dhahri and Omri, 2018). Entrepreneurship was measured by the percentage of the working-age population (Appendix 1). The economic growth was estimated in terms per capita (GDP), while ecological growth was evaluated in terms of carbon dioxide emission and finally, social growth was measured based on the human development index (Gürlük, 2009). Human development index was assessed based on the life expectancy index, education index and GDP index. All these indexes can hold either of the two values: 0 corresponds to the lowest value and 1 corresponds to the highest value. Human Development Index (HDI) (Appendix 2) was modified to find Modified Human Development Index (MDHI) (Appendix 3) by ignoring income to negate the multicollinearity problem.

Based on the figures in table 1 (Appendix 4), we can see that the Philippines and Romania hold the highest level and the lowest level of entrepreneurship. Argentina has the best country in terms of GDP while Nigeria is at the bottom. The human development level was high in Peru and lowest in the Philippines. Finally, South Africa emits the highest volume of Carbon dioxide emission while Nigeria emits the lowest. The standard deviation represents the volatile nature of a country. The highest volatile country in terms of entrepreneurship was Indonesia while Argentina was the highest volatile country in terms of GDP. Both China and Tunisia hold the highest level of volatility in terms of human development. Finally, Iran has the highest volatile country for carbon dioxide emission. From the figures, two things clearly stand out: the correlation between entrepreneurship, economy and ecology was high while the correlation between entrepreneurship and human development was low. This indicates that entrepreneurship plays a substantial role in economic growth and green environment simultaneously. The results also show that the increase in economic growth increases human development with the emissions of carbon dioxide showcasing the connection between them.

VECM model’s short and long-run Granger causality test results between entrepreneurship (ENT), economy (Y), social human development (MDHI) and ecology (C) is available in table 2 (Appendix 5). The below figure showcases the linkages in the short and long-run between the 4 entities. Therefore, we will now discuss the findings from the short-run test. It appears that there was a unidirectional causality between entrepreneurship and economy while there was a bidirectional relationship between entrepreneurship and ecology. On the other hand, the relationship between entrepreneurship and social human development is neutral. We could also see the correlation between economy, ecology and social human development in the short run causality test. Ecology holds a bidirectional relationship with both economy and social human development but the relationship between economy and social human development is unidirectional from the economy. Findings from long-run vary slightly from the short run in that entrepreneurship has a bidirectional relationship with both economy and ecology while the social human development has a unidirectional with entrepreneurship from human development. Social human development has a unidirectional relationship with both economy and ecology. The relationship between economy and ecology is bidirectional. These findings hold evidence to support the correlation between entrepreneurship and the three pillars of sustainability (Dhahri and Omri, 2018).To conclude, In Rio +20 conference, one of the United Nation publication “The future we want” was aimed at creating awareness about the sustainable development by improving the economic, social and environmental together without impacting other crucial entities. Elimination of poverty and unemployment can be resolved by entrepreneurship (Bogan and Darity, 2008). Today’s entrepreneurs understand that long-term success includes a positive impact on the environment and society through innovations and efficient performance. Institutional entrepreneurs play a vital role in the long-term future while opportunity entrepreneurs resolve the current issues to achieve short-term growth. Furthermore, developing nations could become a developed nation with their entrepreneurs focusing on ideas to achieve sustainable development through their business ideas and strategies (Egri and Herman, 2000; Perrini, Russo and Tencati, 2007). Economic stability is primary for the company’s survival, which is managed through funds. Social human development is managed by the company by fulfilling the needs of its primary and secondary stakeholders. Environmental sustainability is ensured by the operation of the firm without degradation of the ecosystem. Even though entrepreneurship has a positive impact, the prerequisite condition to attain sustainable development was not discussed which could alter the effect completely.  As we have seen, the pillars of sustainability have interaction and interdependency with entrepreneurship and among them. Sustainable entrepreneurship (SE)  will be the panacea for development.

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