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Entrepreneurship and Poverty Alleviation: an Empirical Study

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Entrepreneurship and Poverty Alleviation: An Empirical Study

Nawal Meraj Syeda Ayesha Sadruddin Rahat Shams

Business Ethics Dr. Muhammad Asim 11th May, 2015

We would also like to thank our colleagues from New York University, Abu Dhabi, who provided insight and expertise that greatly assisted the research, although they may not agree with all of the interpretations/conclusions of this paper.
We would also like to show our highest gratitude to the Dr. Muhammad Asim for sharing his pearls of wisdom with us during the course of this research and guiding us throughout the course work.

Table of Contents

ABSTRACT 2 Keywords Error! Bookmark not defined. 1.0 INTRODUCION 2 2.0 CONCEPTUAL FRAMEWORKAND BACKGROUND OF THE STUDY 2 2.1 Concept of Poverty 2 2.2 Concept of Entrepreneurship 2 2.3 GDP Growth and Poverty Reduction 2 2.4 Strategies for Reducing Poverty through Entrepreneurship 2 2.5 Relieving Poverty through Entrepreneurship Education 2 3.0 METHODOLOGY OF THE STUDY 2 4.0 EMPIRICAL REVIEWS ON ENTREPRENEURSHIP AND POVERTY ALLEVIATION 2 5.0 CONCLUSION 2 6.0 FUTURE RESEARCH 2 REFERENCES 2

Entrepreneurship is a real wellspring of riches and employment creation, financial and mechanical development and an indication of social change. Entrepreneurs have intermittently acquired a place in the discussions of drivers of economic development. Over the world, countries that made entrepreneurship and business collaborate in a congenial environment were effective in lessening poverty radically. Examining the situation of the globe, entrepreneurship could be one of the best solutions of reducing poverty. This study looks at the relationship between poverty indicators. Secondly, an empirical review of the past literature on the effects of poverty alleviation and how business is related to human change and subsequently to poverty reduction follows. Going through the research agenda on entrepreneurship and poverty, the paper highpoints the new approaches to entrepreneurship to better apprehend the procedure of easing poverty. The basic motivation of this research paper is to endorse the association between entrepreneurship development and poverty reduction constructed on empirical reviews.

Keywords: Entrepreneurship, Poverty Alleviation, Economic Development

Entrepreneurship is the philosophy of making a big deal about quality by submitting the central capacities, time and effort, and, tolerating the running as one with cash related and once in a while physical likewise, social risks, to collect the consequent monetary prizes and individual satisfaction. Today, entrepreneurship is getting the chance to be successively dominant. Individual, social and environmental components all have a prompt bearing on the entrepreneurial procedure, its motivation, improvement, movement and augmentation, (Ali, 2013).
Entrepreneurship progression adds to poverty reduction when it makes job through the start-up of new businesses undertaking or the expansion of existing ones and they grow social wealth by making new markets, new ad endeavours, new development, new institutional structures, new livelihoods and net augmentations in veritable productivity, extends compensation which completes in higher desires for ordinary life for the masses. It ism then, reliably to express that if the amount of specialists of any given country extend, the poverty pointers will decrease and unfortunate vice versa.
The idea of poverty is not a straightforward assignment. World Bank's announcement on comprehension poverty says: ‘Poverty is hunger’. Poverty is absence of shelter. Poverty is being wiped out and not having the capacity to see a doctor. Poverty is not having access to education and not knowing how to peruse. Poverty is not having an occupation, is trepidation for the future, living one day at a period. Poverty is losing a child to disease realized by unclean water. Poverty is feebleness, absence of representation and flexibility (Ali, 2013).
Poverty is the fundamental obstruction and issue of the individuals are confronting around the globe. As of 2013, there were around 2.47 billion individuals in the world living in neediness with a wage of USD 2 or less a day; the greater part of them from creating or under creating nations situated in African and Asian continent. The populace living under neediness just declined from 2.59 billion to 2.47 billion somewhere around 1981 and 2013. Henceforth the decline generally occurred in created nations (G. Bruton, 2013).
Furthermore, change and advancement obliged a switch from low to high productivity, the creation and gathering of new items and organizations, new aptitudes and new data these developments are made possible by entrepreneurs who are the designers of "volume creation‟ for effectiveness and improvement. Collecting the specific variables of capital, work and development which are generally not entirely showcased, may not for the most part be administered to activities supplied where effectiveness could be the best. The making of viable new interests by provincial measures in like manner serves to create indigenous advancement and reduction the reliance on the conflicting character of remote direct theory (J. Mitra, 2011).
Regardless, entrepreneurship is a wellspring of compensation salary to the business visionary and fill in and also other segment inputs and given the long term focuses and the advancement capacity of entrepreneurial activities. The entrepreneur and all pay laborers get the opportunity to be more financially free and beyond any doubt to face the challenges of life and it can, therefore, be communicated that undertaking advances compensation strengthening in an economy and in the present day world; business venture gives another approach to manage doing confronting poverty and vitalizing money related improvement in creating countries (D. Adenutsi, 2009).
This research paper looks at the relationship between poverty indicators. Secondly, an empirical review of the past literature on the effects of poverty alleviation and how business is related to human change and subsequently to poverty reduction follows. The study is completed with a couple of remarks and proposals for future exploration.

2.1 Concept of Poverty
Many developed and underdeveloped nations are facing the challenges of poverty around the world. Unemployment, at its high pace, has become a major obstacle for developing and under developed countries of the world to progress. Levels of poverty and unemployment, although varies across and within different nations, it still remains a barrier for the nations to efficiently utilize their human resources in order to prosper socially and economically.
Poverty has been categorized in two dimensions: relative and absolute, by the World Bank. Absolute poverty is described as a lack of resources that are needed to fulfill basic needs of security, physical needs and those factors due to whose absence, people are unable to assume responsibilities and exercise fundamental rights. Relative poverty is categorized among those social groups of people in the society who are unable to achieve a particular level of standard of living that restricts them to fulfill their social roles, restrains them to involve in relationships and is believed to be normative to the society in which they live. Poverty is also explained as the deprivation of basic securities, including not only financial but needs like education, housing, health care and employment. According to the World Bank, poverty is caused due to lack of investment, infrastructure, inadequate policies at national level and structural and political instability. The World Bank describes several thresholds under which poverty can be described and identified such as people earning USD 2 per day are living in poverty whereas people earning USD 1.25 are living under extreme poverty. Poverty also refers to the state when people are extremely deprived of proper health, education, power and safely.
Rogerson (1999) identified four broad categories of assets to measure poverty under the South African context. These were social and institutional assets such as relations, trust and decision making, human resources like labor, education and health; natural resources like water, land and property; man-made assets like housing, infrastructure (social and productive).He concluded that countries which manage these assets well are less vulnerable, more secure against poverty struck .
2.2 Concept of Entrepreneurship
Entrepreneurship is describe as a process of identifying potential business opportunities and economic resources that will turn into organizing a new business or restarting an existing business, considering the risks and uncertainties associated with it, with the purpose of generating profits for one’s own use, (D. Adenutsi, 2009). Entrepreneurship creates long-term value and assets for the economy via which future cash flows are expected to flow. This process requires innovations, intuition and imaginations to work out-of-the-box to generate profits for future expansions and growth.
Entrepreneurship forms the basis for efficient and effective utilization of country’s resources to produce goods and services for local and foreign markets. It also opens doors to more cost-efficient use of technology in SMEs (Small and Medium Enterprises), where the economy is dominated largely by low income groups, and thus improving productivity of all factors of production (D. Adenutsi, 2009). Entrepreneurial activity, can thus be defined as a process where the owner takes the initiative and remain involved in the operations of the business for the purpose of creating value and maximizing profits, by exploring, identifying and evaluating new markets and opportunities (D. Adenutsi, 2009). Thus Entrepreneurship can be described as a self-employment process, which gives rise to exploring new business opportunities, job creation, innovation and creative thinking (A. Bagheri, 2010).
According to M. Coulter (2001), entrepreneurship is defined as:
"Entrepreneurship is the process whereby an individual or a group of individuals use organized efforts and means to pursue opportunities to create value and grow by fulfilling wants and needs through innovation and uniqueness, no matter what resources are currently controlled”.

2.3 GDP Growth and Poverty Reduction
According to the World Bank report (2008), Martin (2010) found that poverty and GDP growth were inversely related to each other in the African region, i.e. when GDP growth rate paced-up, poverty levels were reduced and when GDP fell down, poverty rose with same opposite effect. Thus, poverty and GDP growth, resulting from business processes, actually affected the poverty levels in the African region.
However, these trends were not only implied to the African region. The Endeavor Insight Team analyzed that this relationship existed and was showing similar trends across different types of countries like India, Russia, Brazil and China. Further has been mentioned that entrepreneurs who have greater influential ideas can affect growth rates of countries in a short span of time. When these high-growth companies prosper and accumulate revenues, they simultaneously attract foreign direct investments and a rise in demand for domestic and international products and services. This ultimately affects the economic turnover of the country in terms of greater GDP growth rate and an inverse impact on poverty reduction (based on empirical evidences). Endeavor Insight, 2013 positively agreed to the relationship between poverty and entrepreneurial development, based on their data findings on BRICS countries (Brazil, Russia, India, China and South Africa) and concluded that “poverty is economic growth and has high implications for high-impact entrepreneurship” (Ashley, 2013). These are the countries where almost 40% of the world’s populations live under extreme poverty.

2.4 Strategies for Reducing Poverty through Entrepreneurship
Relieving Poverty through Micro, Small & Medium Enterprises (SMEs)
SMEs have long played an important role in creating new jobs, economic development and alleviating poverty by creating opportunities to earn income (H. Delwar, 2014). Micro, Small and Medium Enterprises (SMEs) also have shown to be the problem-solver during economic recessions and lay-off times, where large firms disintegrated but SMEs hired the people to keep employment intact. There is evidence in many reports of the contributions SMEs made towards the industrial development in both developed and developing nations. According to Delwar’s study, Micro, Small and Medium Enterprises constitute 91-93% of the total employment in Thailand, Singapore and Taiwan. Similarly, if we see in Pakistan, SMEs provide 30% contribution towards the GDP of Pakistan (S. Qazi, 2013).
2.5 Relieving Poverty through Entrepreneurship Education
Education relating to entrepreneurship has proven to be an effective method of reducing poverty. Strong empirical evidence claims that poverty can be reduced only if economic growth is powered. Entrepreneurship acts as the fuel to economic growth, which in persuades people to learn and develop skills and capacities, thus contributing to positive economic growth. If education is undertaken as a serious provision, these three factors (economic growth, poverty and entrepreneurship) may result in suggested outcomes of prosperity and poverty reduction. Countries who invest in capacity building and entrepreneurship education can more effectively counter the lack of resources resulting in poverty within a nation as this creates a better workforce, resulting in greater innovation, creativity and objective goals, thereby greater job creation and global business opportunities, leading to reduce incidence of poverty (M. Shariff, 2010).

This review study has used existing literature on entrepreneurship development and its effect on poverty reduction to conclude the how entrepreneurship impacts the levels poverty and their underlying factors that can help towards entrepreneurial development. This study was conducted through general search of papers available online on various databases like Google, MRPA, Endeavour, and Springer Link, named as Entrepreneurship and Poverty Alleviation. A number of cited works were found on this topic and empirical study of the literature was conducted over the most relevant papers that related closely to the issue of entrepreneurship and poverty alleviation. The empirical review has been summarized based on the author’s objectives, findings, and methodologies used and their conclusions based on the present issues of entrepreneurship and its impact on poverty alleviation.
Entrepreneurship and Economic Development
Notwithstanding a more refined photograph of the relationship between entrepreneurship and diverse economic targets , a collection of composing looks at the significance of entrepreneurship to fiscal change (Z. J. Acs, 2008), diagrams one of the more unmistakable responsibilities to this relationship: the "U-framed” theory. This theory puts that as countries make from a variable driven period of headway to a profitability driven stage, entrepreneurial development truly decreases; in any case, as countries become further from the capability driven stage to the improvement driven stage, entrepreneurial development again increases. While exhibiting that the U-framed theory is sound for depicting a reduction in autonomous function as countries make, Acs (2008) propose it is lacking for making light of business more broadly, where it is basic to discrete between "necessity entrepreneurship" (starting a business in the wake of being pushed into it) and "opportunity entrepreneurship" (starting a business to enterprise an evident business opportunity).
The fundamental of this partition accustom to both Kilby (1971), who was among the first to prescribe that entrepreneurs indicate inside in an economy in various ways, and Farstad (2002), who makes a comparable refinement between "subsistence entrepreneurs" and "innovative entrepreneurs” This prescribes that entrepreneurship responsibilities to financial change can gather in a surprising path dependent upon the kind of entrepreneurship. Klapper and Richmond (2009) underscore the hugeness of entrepreneurship in adding to economic development through the improvement of endeavors. These endeavors can make business, floods, and assistant economic alteration. By separation, need or subsistence entrepreneurship own micro and small enterprises (MSEs) that are impossible to develop past a few agents (Nichter and Goldmark 2009). Despite the deficiency of enormous enterprise advancement, this sort of big business can even now add to change, following these endeavors are a basic wellspring of pay and address an extensive offer of era and general employment in the making scene (Grimm, Knorringa, and Lay 2012). Necessity entrepreneurship and autonomous work are terms regularly used equally. At any rate, Levine and Rubinstein (2013) prescribe that autonomous work itself demands division between the joined autonomously utilized (formal zone, tend to obtain more than their salaried accomplices) and unincorporated self-employed (easygoing section, tend to get not precisely their salaried accomplices).
While a gathering of composing divides amidst necessity and opportunity entrepreneurship, new research recommends that this stratification is less destined and that occasionally necessity entrepreneurs share properties with progress-directed entrepreneurs. The Grimm, Knorringa, and Lay (2012) study, arranged in seven urban groups transversely over West Africa, demonstrates that some spot between productive agents( (whose attempts create) and necessity entrepreneurship (whose endeavors don't) are different "obliged gazelles." The "propelled gazelles" give the low-capital and low-advantage traits of necessity entrepreneurs however have the right stuff and practices of viable entrepreneurs (with enterprises that create these disclosures resound with Gindling (2012), who also find bestowed qualities across over successful and less unsuccessful entrepreneurs.
Kanitkar (1994) used semi-structured questionnaire and open-ended interview methods to survey successful entrepreneurs and micro-enterprise owners in different region of rural India, assessing how they emerged. 86 village-based entrepreneurs were surveyed and found out that most of them turned from their basic agricultural-based activities to non-farming activities, comprising business activity which led to the creation of resources for their companies. The socioeconomic profile of these entrepreneurs motivated them to bring about this shift in their villages, thus creating new jobs and improved income levels.
McMullan (1998) conducted their surveys from the students of Swinburne University of Technology in Melbourne, Australia. In their study, they asked them about their activities and performance after graduating from the university. Their research concluded that 87% of the student, in some or the other, started their own businesses, either independently or with the support of particular corporations.
R. E. Goldsmith (1991) applied the Kirton’s Adaption-Innovation Theory (KAI) by using descriptive statistical method and conducted their research on 34 business students in a class. The study was conducted at the beginning and at the end of semester. This study described vast differences in the styles of students relating to creativity, problem-solving and decision making; the skills relevant to entrepreneurship. Results concluded that students who belonged to the entrepreneurship and Small business class tend to reflect higher KAI scores than the general population and control group. M. A. Abdullah (1999) surveyed SMEs in Penang, Malaysia to evaluate the support SMEs are able to access from the government sponsored programs for the SMEs. For this, they survey 185 small and medium-sized enterprises using a structured questionnaire. He discovered the basic reasons behind the narrow access of SMEs to such programs were lack of information, individual thinking, inadequate knowledge of the support programs and weak legislative process. Khandker in 2006, in his paper argues the advent of microfinance institutions caused by the increased influx of entrepreneurial activities. He enlightens that entrepreneurship is vital to poverty reduction, not only for the lending institutions, but it also affects positively to the society at large and thus, is indirectly affected by the microfinance establishments. However, it has been argued by Coleman (2006) and Hulme (1999) that such micro financing services provided to entrepreneurs can eliminate poverty depending on the socioeconomic backgrounds of the households in perspective. It is evident; however, that finance can be applied to entrepreneurial activities to alleviate poverty in a more reliable and permanent way. S. Nichter (2009) conducted a survey on developing nations’ micro, small and medium enterprises. The survey was based on secondary research data and was aimed at finding out the factors that affect the growth of these SMEs in the developing nations. The survey opened factors such as distinct individualities of an entrepreneur, firm characteristics, business surroundings and interactive factors such as value chain networks. These have been found to be connected with the growth of SMEs in developing nations. S. Mensah (2010) assessed the poorest regions of South Africa to find out the impact of governmental policies and initiatives undertaken to alleviate poverty by developing entrepreneurship opportunities. They carried out desk research and qualitative analysis and found out that training facility in entrepreneurship and provision of other facilities like education and finance and boost poor owner of SMEs to grow and develop their businesses and assess opportunities at a different level. This can help in job creation and can help to drive others out of poverty, too. Oghojafor (2011) highlights the big issues of how entrepreneurship can be gauged as a strategic tool to help alleviate poverty in Nigeria. The research was based on structured questionnaires and open-ended interviews and conducted on 138 university students who are planning to become entrepreneurs in the near future. Empirical tests of statistics were performed and the research found out that economic growth, powered by micro enterprises, can help to serve as an important ladder or channel to escape poverty among the low income earners.
In practical terms we discovered the importance of entrepreneurship and its underlying connection with improved living standards. Therefore, the formation of economically viable businesses serves to be the engine of economic improvements leading to poverty alleviation (Ahlstrom, 2010; Baumol et al., 2009). It is also necessary to recognize the spillover of knowledge and skills that entrepreneurship brings providing the poor with a chance to allocate the available in the best ways that would have otherwise, remained inappropriate (Bruton 2010).
Poverty is a great problem to the developing countries and researchers have conducted different studies to determine how entrepreneurship is helpful in alleviating poverty. There is a great gap that needs to be addressed, i.e. the understanding of how those in poverty can prompt businesses, earn bargains and repay loans (Ahlstrom, 2010; Hart, 2002). Entrepreneurship can only exist if the individuals are ready to take initiative to exploit opportunities (Frese, 2009; McMullen, 2006; Rauch, 2000). It also debated that how important it is for a developing country to have a promising approach to promote entrepreneurship.
Entrepreneurship not only triggers economics growth but also contributes to poverty alleviation (Mead, 1998). In this regard, the effectiveness of training programs and action principles that are derived from the relevant scientific knowledge are considered to be bottom-up approach in the developing countries (Kabongo, 2010). The research that addresses responsibilities of the government agencies to introduce such regulatory framework and policies that create ease for the startups is important. Researchers also debate the order and the relative importance in which they address the reforms (Manders, 2004; Perkins et al., 2013). The reforms are actually the tools that promise the poor build sustainable businesses with growth potentials and help them gain funds for innovations and productivity improvements.
Moreover, the top-down approach for foreign aid programs has also been criticized. Giant organizations such as International Monetary Funds, the World Bank, national aid agencies (USAID, GIZ) have lent trillions of dollars to aid the entrepreneurs yet the approach is questioned (Ahlstrom 2010; Khavul 2010). The problem with this approach was the aid was engulfed by the corrupt politicians in charge and only a little fraction of money was passed to bottom (Djankov et. al. 2008; Khavul 2010). It also created dependencies and helplessness (West et al 2008). Therefore in most of the cases, aid programs inhibit the positive attitude for entrepreneurs if not designed properly (Djankov et al 2008). Again, a comprehensive bottom-up approach and its deep study is a necessary factor to let the effectiveness of the aid programs work. In contrast to top-down approach, bottom-up approach focuses the individual level. That is, individual capacity to generate productivity and innovations that helps economic boost and diminishes poverty (Khavul 2010). However, introducing mere strategies is not just enough. It should also be considered in further research if the entrepreneurial activity in question has positive economic and social impacts. For example in many cases it has also been observed that entrepreneurs get engage in producing wealth for themselves and possess least concern in contributing to overall output of economy (Sauka 2008). Entrepreneurs are generally inclined to the rule of game in whatever context. In the countries where rule of game is not favorable to productive entrepreneurs, they would be dominant and polluted with unproductive entrepreneurs.

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[ 1 ]. Ashley Eberhert, “Poverty Reduction through Job Creation & GDP Growth: Understanding the Potential of High-Impact Entrepreneurship”, A report from Endeavor Insight, April 3, 2013.
[ 2 ]. Derived from World Bank data on the global total and individual national populations under the $1.25 poverty line in 2008.
[ 3 ]. Entrepreneurship Education and Training Programs around the World (Dimensions for Success)
Author: Alexandria Valerio, Brent Parton, and Alicia Robb Acs, Z. J., S. Desai, and J. Hessels. 2008. “Entrepreneurship, Economic Development and Institutions.” Small Business Economics 31: 219–34.…...

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