In an age of discussion about wealth inequality, many overlook the fundamental role of entrepreneurship in decreasing income and wealth gaps between different regions in the same country. Entrepreneurship triggers economic growth, which then has palpable effects on improving the surrounding area.
Canada provides an important case study to highlight this concept, as the country suffers from great inequalities between regions yet also is home to immense amounts of entrepreneurial activity. Canada consistently ranks second behind the United States on lists of the world’s most entrepreneurial countries.
A recent study by Lukas Matejovsky, Sandeep Mohapatra and Bodo Steiner found that entrepreneurship was the number one driver of regional growth in Canada from 1987 to 2007. The researchers defined entrepreneurship as people who are self-employed in non-agricultural industries, and regional growth was measured in terms of real per capita GDP. Entrepreneurship was found to have the largest impact on regional growth compared to other variables, such as education and employment.
Given the results, the researchers suggest that policymakers should make an effort to reduce barriers to starting new businesses. Potential ways to do so include making it easier for prospective entrepreneurs to access investors and funding, in addition to increasing the flow of knowledge pertaining to starting new enterprises.
The researchers also found that when policies that support entrepreneurs were put in place, they had long-lasting effects, and led to income growth over multiple periods after the policies were implemented. This is important to keep in mind, as sometimes policies may not seem to be immediately effective, but in the long run can be beneficial.
While this study provides a good reminder that entrepreneurship is an often overlooked, but incredibly effective, means to help ignite growth and reduce regional inequality within a country, Endeavor Insight has consistently found that the presence of entrepreneurial businesses in an area typically is not enough. In order to greatly enhance the economic well-being of a region, what really matters is scaling up these small self-owned businesses to become larger, more tangible enterprises. Given that in this study, most of the entrepreneurs are owners of smaller businesses, the results of this study would be even more significant if the entrepreneurs were to scale up their enterprises.
You can find the full version of the paper here.
Contributed by Becca Raffel.
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