What a wonder it is that our common knowledge of a (static) demand and supply 'market' model fails to capture the essence of the dynamics of entrepreneurship!
Neoclassical economics dominates university teaching today, where students are taught economics from a static perspective (of course, higher level economics will focus upon stochastic models). The link between entrepreneurship and economic growth is addressed from an Austrian economic point of view.
The link is this:
Entrepreneurship is a process, and entrepreneurs are defined as:
(i) Risk bearers
(ii) Organizers of resources to higher valued combinations
(iii) Innovators (not inventors)
(iv) Agents alert to opportunities for arbitrage
How entrepreneurship drives economic growth is through the knowledge spillover theory - that knowledge can spill over from (larger) firms who invest in producing innovative outputs, but who fail to use all their knowledge to create innovations. This knowledge spills over to potential entrepreneurs who jump at the opportunity, take risks, organise these info and resources to valuable products and stay alert to arbitrage opportunities. And that's how economic growth happens!
A step away from neoclassical economics, wouldn't you say? For further readings on the link between entrepreneurship and economic growth, refer to studies done by Schumpeter, and the ones I've been reading lately - Audretsch.
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