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Procedia Economics and Finance 3 (2012) 268 – 275

Emerging Markets Queries in Finance and Business

Innovative Entrepreneurship for Economic Development in EU

Szabo K. Zsuzsannaa,*, Emilia Hermana,b
a
irgu-Mures, N. Iorga Street no.1, Tirgu-Mures 540088
b
Academy of Economic Studies, Bucharest, Romania

Abstract

It is widely acknowledged that entrepreneurship contributes to the positive growth of different economical
indicators. Adam Smith 1776 already observed different features of innovation in the 18th century and later
generations of specialists have showed that innovation is a great force of economic activity. Nowadays, it is
well known worldwide that innovation is the engine of growth being an important element of development
achievements Fagerberg et al., 2011. In Europe, after 1980, the first programs, which promoted innovation and
SMEs, started EC, 2000. The impact on the growth of the innovative SMEs is significant as official data show.
Therefore, innovative entrepreneurship started to be considered a key factor of modern economic development
UN, 2012.
This paper presents a short review of the literature on the relevance and role of innovation and entrepreneurship
on economic growth and development. This study intends to analyze the relation between entrepreneurship,
innovative entrepreneurship and economic development in EU. For the statistical data processing, we used the
SPSS software package.

© 2012 The©Authors.
2012 Published
Published byby Elsevier
Elsevier Ltd. access
Ltd. Open Selection
underand peer-review
CC BY-NC-ND under responsibility of the
license. Emerging
Markets
Selection and Queries
peer review in Finance of
under responsibility and Business
Emerging local
Markets organization
Queries in Finance and Business local organization.

Keywords: innovation; entrepreneurship; SMEs; innovative entrepreneurship; competitiveness; economic growth; economic development.

* Corresponding author . Tel.: +40741172064; fax: +40256219034.

E-mail address: szabo.zs.katalin@gmail.com

2212-6716 © 2012 The Authors. Published by Elsevier Ltd. Open access under CC BY-NC-ND license.
Selection and peer review under responsibility of Emerging Markets Queries in Finance and Business local organization.
doi:10.1016/S2212-5671(12)00151-7
 Szabo K. Zsuzsanna and Emilia Herman / Procedia Economics and Finance 3 (2012) 268 – 275 269

1. Introduction

Reaching the objective most

competitive and dynamic knowledge- , as well as into an
one Europe Strategy 2020, requires the acknowledgement of
the central role that innovation and entrepreneurship play in achieving economic development, job creation and
growth of well-being.
Different studies have also acknowledged this central role in the economic literature. Thus, entrepreneurship
has been recognized as a micro driver of innovation and economic growth Wennekers and Thurik, 1999;
Audretsch and Thurik, 2001; Acs, 2006; Audretsch et al., 2006. Grilo and Thurik 2005 consider that the
entrepreneurial activity is at the heart of innovation, productivity growth, competitiveness, economic growth
and job creation. Dahlstrand and Stevenson 2008 show that SMEs and entrepreneurship continue to be a key
source of dynamism, innovation and flexibility in advanced industrialized countries, as well as in emerging and
developing economies. In OECD, 2007a, it is underlined that, today, innovative performance is a crucial factor
in determining competitiveness and national progress, and much of the rise in living standards is due to
innovation, emphasizing the fact that improving the business environment for innovation is especially
important, as business is the main driver of innovation.
The relationship between entrepreneurship and innovation and their role in economic development was very
well highlighted by Schumpeter one of the most influential economists of the twentieth century The Theory
of Economic Development 1911/34
Subsequent studies have increasingly emphasized
the link between innovation, underlying research and entrepreneurial effort aimed at commercializing the
results of R&D, in many instances innovation being considered a precondition for an enterprise acquiring a
competitive advantage UN, 2012.
Some research papers make the distinction
underlining that these two types of entrepreneurship may result in different economic outcomes Waasdorp,
2002; Dahlstrand and Stevenson, 2010. The main contribution of ordinary entrepreneurship is job creation.
Innovative entrepreneurship is more likely to lead to higher value-added jobs and wealth creation and firms
with higher growth rates, the founders perhaps more compelled towards growth by the opportunity of the
venture and its innovativeness Stevenson, 2002.
According to OSLO Manual OECD, 2005, innovation is the implementation of a new or significantly
improved product good or service, or process, a new marketing method, or a new organizational method in
business pr . On the other hand, entrepreneurs
persons business owners who seek to generate value, through the creation or expansion of economic activity,
by identifying and exploiting new products, proc OECD, 2007b. The combination of
entrepreneurship and innovation results in innovative entrepreneurship: new firms based on new innovative
ideas.
Taking into account that most of the entrepreneurial activity most assuredly involves innovation, according
to Audretsch and Thurik 2001 and Acs et al. 2005, entrepreneurs are critical to the innovation process and the
entrepreneurial capacity is a key element in the transfer of knowledge in the commercialization process.

2. Methodology and data

In this paper, we aim to analyse the relationship between innovative entrepreneurship and economic
development at the level of the EU member states to emphasize how innovation and entrepreneurship can
influence the level of economic development in these countries.
270 Szabo K. Zsuzsanna and Emilia Herman / Procedia Economics and Finance 3 (2012) 268 – 275

In order to reach our objectives the methodology used was, mainly, the statistical one. We used the SPSS
software package for the statistical data processing and interpreting of innovative entrepreneurship expressed
by SMEs introducing product or process innovations as % of SMEs and SMEs introducing marketing or
organisational innovations as % of SMEs as % of Total early-
stage Entrepreneurial Activity TEA, innovative performance expressed by Summary Innovation Index,
national competitiveness expressed by Global Competitiveness Index and economic development expressed by
GDP per capita in PPS as % of EU 27 average GDP =100%. The statistical data are from 2011 and are
provided by Eurostat, Global Entrepreneurship Monitor Report GEM, the Innovation Union Scoreboard EU,
2012 and the Global Competitiveness Report 2012 2013 WEF, 2012.

3. The effect of entrepreneurship and innovation on economic development

The empirical studies highlight that the effect that innovation and entrepreneurship have on economic
growth and development differs according to the development stages of a country. In line with the economic
theory of stages of development Porter et al., 2002, economies have three stages of development: the factor-
driven stage, the efficiency-driven stage and the innovation-driven stage.
According to the Global Competitiveness Report 2012 2013 WEF, 2012 out of the 27 economies of the EU
member states, two are efficiency-driven economies Romania and Bulgaria, five are economies in transition
from stage 2 to stage 3 Estonia, Hungary, Latvia, Lithuania and Poland, and the rest are innovation-driven
economies. Increasing competitiveness in less-advanced countries can be achieved by adopting existing
technologies or making incremental improvements in other areas, but in the countries that have reached the
innovation stage of development this is no longer sufficient for increasing productivity. Firms in these
countries must design and develop cutting-edge products and processes to maint WEF,
2012. In 2011, Romania was ranked 72nd among 144 countries for which the Global Competitiveness Index GCI
of
national compe . However, in terms of innovation GCI, the twelfth pillar taken into account,
the Romanian ranking is much more unfavourable, the 102nd place among 144 countries.
Achieving a higher level of economic development entails reaching a higher level of national
competitiveness. As revealed in figure 1, there is a positive correlation Spearman correlation coefficient=
+0,781 between the level of competitiveness expressed by GCI and economic development GDP/capita, in EU.
This fact confirms the hypothesis according to which the level of productivity, in turn, sets the level of
prosperity that can be earned by an economy.

300
LU

250 Efficiency-driven stage

Transition
200 Innovation-driven
GDP/capita

150 NL
IE AT
DK SE
DE
IT ES
CY FR
100 GR SI BE FI
SK UK
PT MT CZ EE
RO
50 HU PL
LV LT
BG
R Sq Linear = 0.366

3.80 4.00 4.20 4.40 4.60 4.80 5.00 5.20 5.40 5.60

Global Competitiveness Index (GCI)

Source: Own calculations based on data provided by Eurostat and WEF (2012)

Fig. 1. Direct correlation between competitiveness and economic development

 Szabo K. Zsuzsanna and Emilia Herman / Procedia Economics and Finance 3 (2012) 268 – 275 271

It can be noticed that efficiency-driven economies and those in transition from stage 2 to stage 3 the Baltic
countries and those in Eastern Europe have a reduced level of GDP/capita, whereas innovation-driven
economies mainly the old member states have a higher GDP/capita.
The economic research also highlights that the reasons for becoming entrepreneurs differ in relation to the
stages of development of a country. In Global Entrepreneurship Monitor Report 2012, it is shown that
entrepreneurs may be pushed into starting businesses out of necessity because they have no other work options
and need a source of income and/or because they recognize opportunities and choose to pursue them
provement-driven opportu .
The results of the analysis of the relationship between GDP/capita and Necessity-Driven Entrepreneurial
Activity indicator calculated as percentage of those involved in Total early-stage Entrepreneurial Activity -
TEA who are involved in entrepreneurship because they had no other option for work indicate the existence of
a negative correlation at the level of the EU 20 countries, for which TEA Spearman correlation coefficient= -
0.687, figure 2a was calculated.

140 140
NL NL
IE
Efficiency- IE SE
SE DE driven stage DE BE
BE FI 120 DK
120 DK Transition
UK UK FR
FR Innovation- FI
ES
ES driven stage 100
GDP/capita

100
GDP/capita

SI
SI GR CZ
GR PT
PT
80 SK
80
SK HU
CZ
HU LT
PL
60
LV PL
60 RO
LT LV
R Sq Linear = 0.526 RO
40 R Sq Linear = 0.387
40
20 30 40 50 60 70 80

0 10 20 30 40 50 Improvement-Driven Opportunity Entrepreneurial

Necessity-Driven Entrepreneurial Activity (%) Activity (%)

Source: Own calculations based on data provided by Eurostat and The Global Entrepreneurship Monitor Report (2012)

Fig. 2. (a). Negative correlation between (b). Positive correlation between

and economic development

Thus, in the EU countries, especially those in Central and Eastern Europe, in the efficiency-driven stage or
in transition to the innovation-driven is much higher than in innovation-
driven economies. On the contrary, between GDP/capita and Improvement-Driven Opportunity Entrepreneurial
Activity indicator calculated as percentage of those involved in TEA who claim to be driven by opportunity as
opposed to finding no other option for work a positive correlation Spearman correlation coefficient=+0.596,
figure 2b was identified. Therefore, as the degree of development of a country increases, meaning that it turns
from a factor-driven economy into an efficiency-driven and innovation-driven economy, necessity gradually
- Moreover, as the level of
economic development increases, innovativeness of entrepreneurs increases as well GEM, 2012.

4. Innovative entrepreneurship and its impact on economic development

According to EU, 2012, based on their average innovation

performance, expressed by the Summary Innovation Index composite indicator that summarizes the
272 Szabo K. Zsuzsanna and Emilia Herman / Procedia Economics and Finance 3 (2012) 268 – 275

performance of research and innovation systems at country level using, the EU Member States are grouped into
four performance groups. These are i Denmark, Finland, Germany and Sweden,
Austria, Belgium, Cyprus, Estonia, France, Ireland, Luxembourg, Netherlands, Slovenia
and the UK, m Czech Republic, Greece, Hungary, Italy, Malta, Poland, Portugal, Slovakia
and Spain m Bulgaria, Latvia, Lithuania and Romania. We mention that the innovation
performance of the countries is based on 25 different indicators which were grouped in 8 innovation
dimensions, incorporated in 3 main type indicators enablers (the main drivers of innovation), firm activities
innovation effects at the level of the firm and outputs the effects on activities.
As shown in figure 3, at the EU level, innovative performance is a factor which economic development is
based on. A direct and strong relationship was identified between Summary Innovation Index (SII) and
GDP/capita. This fact is revealed by the high value of the Spearman correlation coefficient of +0.887. Thus,
gaps between countries in terms of economic development can be explained by the disparities in innovative
performance. In countries like Bulgaria, Latvia, Lithuania and Romania where the innovative performance is
way below that of the EU27 average, a GDP per capita equally reduced was identified. This fact highlights the
need for increasing innovative performance in these countries in order to enhance competitiveness and national
progress.

300
Modest innovators LU

250 Moderate innovators

Innovation followers
200
* Innovation leaders
GDP/capita

150
IE NL DK SE
DE
FR AT BE
ES IT CY
100 MT GR FI
SK UK
LT EE EU 27
LV
CZPT SI
50 PL HU
BG RO

0
R Sq Linear = 0.418

0.20 0.30 0.40 0.50 0.60 0.70 0.80

Summary Innovation Index (SII)

Source: Own calculations based on data provided by Eurostat and EU (2012)

Fig. 3. Direct correlation between innovation performance and economic development

The countries that belong to the innovation leaders group mainly countries in the North-Western Europe
have a slightly higher quality of their innovation systems than GDP per capita levels, which is similar to GDP
per capita recorded by most of the countries that belong to innovation followers group. Fagerberg and Srholec
2008 suggest that the explanation for this difference may be that these countries have well developed
capabilities for exploiting knowledge.
Different research papers show that the economic development largely depends on innovation and the
innovation capacity of enterprises. In order to identify how innovative entrepreneurship influences economic
development, we intend to analyse the relationship between one of the 8 innovation dimensions incorporated in
SII, innovators respectively, and GDP per capita. Innovators, as an innovation dimension, include 3 indicators
and measure the number of firms that have introduced innovations onto the market or within their
organisations, covering both technological and non-technological innovations and the presence of high-growth
firms. These indicators are SMEs introducing product or process innovations as % of SMEs technological
 Szabo K. Zsuzsanna and Emilia Herman / Procedia Economics and Finance 3 (2012) 268 – 275 273

innovation, SMEs introducing marketing or organisational innovations as % of SMEs non-technological

innovations and High-growth innovative firms EU, 2012.

Modest innovators Modest innovators

Innovation followers Innovation followers

* Innova
I tion leaders * IInnovation leaders

Source: Own calculations based on data provided by Eurostat and EU (2012)

Fig. 4. Direct correlation between: (a). Technological innovation and economic development; (b). Non-technological innovation and
economic development

The results of the statistical analysis of the relationship between GDP per capita and SMEs introducing
product or process innovations as % of SMEs, presented in figure 4A, reveal a positive relationship, but one of
an average intensity, between the two variables Spearman correlation coefficient = +0.545. As for the
introduction of new products goods or services and processes by SMEs, it can be noticed that there are
significant differences from one country to another within the same group of economies.
The low level of this indicator in the countries in Central, Eastern and Southern EU, transition economies,
results in a low level of innovation in manufacturing activities and implicitly a low level of economic
development. Statistical data in figure 4B, show the positive correlation between SMEs introducing marketing
or organisational innovations as % of SMEs and GDP per capita at the EU level Spearman correlation
coefficient = +0.577, reflecting the positive effect that non-technological innovation has on national economic
development.

5. Conclusions and recommendations

The world economic crisis, which started in 2008, has deeply affected the European economies and the
decreasing tendency persists more accentuated in emerging market economies in post-crisis period as well.
Nowadays, Europe has to confront major problems, that sustain innovative
entrepreneurship, the key factor of modern economy development,
policy in the areas of science, education, intellectual property and entrepreneurship can be instrumental in
fostering the competitive market economy of the 21st UN, 2012.
The
and to turn the EU into a smart, sustainable and inclusive economy delivering high levels of employment,
274 Szabo K. Zsuzsanna and Emilia Herman / Procedia Economics and Finance 3 (2012) 268 – 275

3 priorities and a total of 7 flagship initiatives were

formulated which are considered as a catalyst of each priority theme. All the flagship initiatives: innovation,
education, information society, climate, competitiveness, labour market present challenges for emerging market
economies. Therefore, Romania and Bulgaria need short and long term strategies. In Romania, policies must
encourage the main drivers of innovation, in this respect the quality of the education system must be improved,
the enrolment in tertiary education must increase, the funds for higher education and research must be
increased.
The results of the study highlight that gaps in economic development level can be explained by disparities in
innovative entrepreneurship. We consider that innovative entrepreneurship, because it is essential to sustain
emerging market economies.

Acknowledgements

The contribution of Szabo K. Zsuzsanna to this paper was supported by the Sectorial Operational
Programme Human Resources Development SOP HRD, financed from the European Social Fund and by the
Romanian Government under the contract number SOP HRD/89/1.5/S/62988.
The contribution of Emilia Herman to this paper was supported from the European Social Fund through
Sectoral Operational Programme Human Resources Development 2007-2013, project number POSDRU-
89/1.5/S/591

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