Is it technology or entrepreneurship that facilitates growth?

According to an estimate, in the year 1820, the difference in per capita income between the richest and the poorest country was no more than 3:1. However, with the industrial revolution, some countries experienced a significant shift in their economic growth and they progressed rapidly, while others remained behind and could not catch-up with the developed world. This sudden growth widened the gap between the countries and some of them became privileged as they accumulated more wealth and capital. Figure 1 below shows the development of long-run GDP per capita.

Figure 1: GDP per capita over the long run

In the intervening century, rapid advances in technology have turned the tables. The newly industrialised economies in East Asia including Japan, Korea and Taiwan have successfully caught up with the industrial leaders, and countries like China and India are already on the path of catching up. The growth empirics confirm that exponential progress in technology is allowing the laggards to quickly close the gap in income and productivity with their developed counterparts. This phenomenon is termed as leapfrogging whereby the developing economies skip a step in their development and move on directly to a more advanced stage by quickly adopting or imitating foreign technology. An example can be the African countries who directly moved onto smartphones avoiding heavy investments required to build fixed-line networks. Previously development was embodied in persons and hence migration of technical staff was a prerequisite for technological progress. Today, it is embodied in machines and therefore it is easily transmittable and has made catch-up relatively easier.

Although technology is important and there is very little disagreement about this, it is who implements the technology that is a key differentiator. The underlying argument of my research is that technology is just an enabler which augments the potential of enterprises and individuals. It is the entrepreneurs in an economy who carry and implement the technology serving as vanguards for economic growth. Just for a moment imagine if we suck out all the entrepreneurs from an economy how will the technology get implemented on its own? Technology is not a panacea, and technological progress is certainly not the only condition for economic growth, it is the entrepreneurs in the system who supplement this development.

However, entrepreneurship has become a buzzword, and there is little realisation that all entrepreneurs are not the same. There are different kinds of entrepreneurs some are motivated by an opportunity while others become entrepreneurs out of necessity, literature distinguishes between these two types of entrepreneurial motivation as: ‘opportunity entrepreneurship’ which is driven by pursuit of an opportunity and ‘necessity entrepreneurship’ which is more needs based due to unemployment or lack of other suitable alternatives. Less is known about which type of entrepreneurship facilitates economic catch-up and also whether economic catch-up is a cause of improved entrepreneurial activity or an effect. In other words, does catch-up lead to improved entrepreneurial activity or does entrepreneurial activity lead to catch-up and vice versa regarding divergence?

I have spent four years of my life researching on this topic, if you are interested in exploring more details and learning about the findings of my study come join me on Saturday 9 June 2018 at the School of Management Alumni Reunion.