Thursday, January 12, 2006

Institutions and entrepreneurship

The Austrian Economists point us to this paper by Frederic Sautet on ‘The Role of Institutions in Entrepreneurship: Implications for Development Policy.’

Institutions are vital to the expansion of entrepreneurial activity, which is at the heart of the process of development and economic growth. What is generally missing in countries with lackluster economic performance is not entrepreneurship as such but the right institutional context for entrepreneurship to take place and to be socially beneficial. What matters for development are the rules that individuals follow and how these rules are defined and enforced. In a successful economy, formal rules are aligned with informal norms and foster entrepreneurial activity by defining and enforcing property rights. The aim of economic policy and social reform must be to re-establish an institutional framework that allows for socially productive entrepreneurial activity to flourish by reducing the cost of engaging in productive activities.

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