The relationship between entrepreneurship and economic development can be highlighted with the help of the following functions performed by entrepreneurs.
(i) Contribution to GDP: Economic development of any economy is often related to increase in GDP. As entrepreneurs takes up production activities, he directly contribute towards the generation of income. In addition to the process, he appoints various factors of production such as land, labour and capital. In return of the services provided, the factors of production receive income. Land gets rent, labour gets wages and capital receives interest and all these values add to the GDP.
(ii) Capital Formation: The GDP of an economy is directly related to the rate of capital formation. Higher the desired rate of growth of GDP, higher is the required rate of capital formation. Entrepreneurs invest their own savings as well as mobilise the savings of others. Thereby, they contribute in the process of capital formation.
(iii) Generating Employment: Many people are not able to earn a living due to lack of opportunities. A new business provides employment opportunity to such people and act as a source to earn livelihood. An entrepreneur by setting up a business provides employment directly as well as indirectly. For instance, it provides employment to labourers building up a factory, to people who will be working in the production process, etc.
(iv) Generation of Business Linkages: An entrepreneur helps in creating a chain of business linkages. An enterprise provides opportunities to both the suppliers of the inputs as well as the marketers who will be selling the output. For instance, if an entrepreneur decides to manufacture tables and chairs, he creates business opportunities for the people who provide the input resources such as wood, steel, etc. Similarly, he will provide work for workers, transporters as well as for the retailers who will sell them further.
(v) Increased Efficiency: An entrepreneur improves economic efficiency by avoiding wastage of resources. He focuses on optimisation of resources and aims at producing greater output from the available input. He also works on the technological upgradation and thereby, contributes to increased productivity.
(vi) Increasing the Range of Economic Activities: Entrepreneurs always look out for fresh areas to invest their savings into or to start up a new business. By doing so, they help in increasing the scale of economic development. By bringing out new opportunities and serving as a source of livelihood in new sectors rather than the stale ones, they help in diversifying the economic activities across geographical and technological and sectoral scope.
