Poverty and Entrepreneurship in Developing Countries

Abstract

This chapter analyzes the relationship between poverty and entrepreneurship. Previous works have argued that only growth oriented entrepreneurs have a tangible effect on aggregate economic activity. The chapter complements these works by arguing that necessity entrepreneurship influences aggregate economic activity too, especially in developing countries. The chapter hypothesizes that lower per capita income and higher income inequality are positively associated to the number of people pursuing entrepreneurial activities because the latter helps to reduce poverty. The chapter tests the hypotheses using GEM data, the Human Development Index, and World Bank Governance Indicators. The results support our intuition and show that total and necessity early-stage entrepreneurship both have a positive effect on countries´ poverty reduction trends.