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Entrepreneurship, Innovation, and Growth

Aug 2003
Stanford King Center on Global Development Working Paper
By  T. N. Srinivasan

The three basic sources of growth in any economy are growth in inputs of production, improvements in the efficiency of allocation of inputs across economic activities, and innovation that creates new products and new uses for existing products, and brings about more efficient use of inputs. Since Solow’s path-breaking analysis of growth in the US economy, it is well known that the share of growth attributable to innovation, although it varies among countries, is still substantial. The paper has four broad themes: the importance of innovation to growth, the importance of entrepreneurship (namely, generation of ideas of potential commercial viability) to innovation, the role of financial intermediaries (particularly venture capital) in fostering entrepreneurship, and lastly, public policies relating to research and development, as well as other policies, such as foreign trade policies, that influence productivity growth.