Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 688: The Political Economy of Entrepreneurship: An Introduction

Robin Douhan () and Magnus Henrekson ()
Additional contact information
Robin Douhan: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Magnus Henrekson: Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: In this introductory chapter to a collective volume dealing with the political economy of entrepreneurship,* we argue, based on a suggested unifying framework, that political economy is a fruitful approach to entrepreneurship. The importance of institutions in structuring such an analysis is also emphasized. The introduction also introduces the selected articles and puts them in context. Vital functions of the capitalist economy are ascribed to the productive entrepreneur, but the selected articles also show that the social value of entrepreneurship must be evaluated as it is realized. Three facets of entrepreneurship are claimed to be of particular importance from a political economy perspective: (i) Entrepreneurship is dynamic in the sense that it adapts to the politically determined institutional framework within which it acts. Under propitious circumstances, it can be a powerful engine of growth, but it can also be channelled in unproductive and destructive directions. (ii) Entrepreneurship enters directly into the political system. The close connection to property rights constitutes a link between entrepreneurship and private versus public ownership and redistribution. Under unfavourable institutional circumstances, rent-seeking and predatory entrepreneurship, via the political system, offer greater profit opportunities than the market. (iii) A political economy approach is necessary in order to understand how the political system shapes the institutional setup. Here, it is emphasized that the distribution of political power is partly determined by economic wealth. Hence, it is relevant to broaden the analysis to the effects on wealth creation and wealth redistribution stemming from entrepreneurial activity.

Keywords: Entrepreneurship; Industrial Policy; Innovation; Property Rights; Regulation; Self-employment

JEL-codes: H32; L25; L50; M13; O31; P14

23 pages, January 3, 2007

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