How is entrepreneurship good for economic growth? This question would seem to have a sim- ple answer: Entrepreneurs create new businesses, and new businesses in turn create jobs, inten- sify competition, and may even increase productivity through technological change. High measured levels of entrepreneurship will thus translate directly into high levels of economic growth. However, the reality is more complicated. If, by entrepreneurship, one allows inclusion of any type of informal self-employment, then high levels of entrepreneurship may actually mean either that there are substantial bureaucratic barriers to formally creating a new busi- ness, or simply that the economy is creating too few conventional wage-earning job opportu- nities. Under these circumstances, we might reasonably hypothesize that high levels of entre- preneurship would correlate with slow economic growth and lagging development. For the past two years I have been the chair of the research committee of a multi-country survey effort known as the Global Entrepreneurship Monitor (GEM) project, which has begun to make headway in understanding how different types of entrepreneurship affect develop- ment. The starting point has been to distinguish “necessity entrepreneurship,”which is having to become an entrepreneur because you have no better option, from “opportunity entrepre- neurship,” which is an active choice to start a new enterprise based on the perception that an unexploited or underexploited business opportunity exists. Analyzing data gathered by GEM researchers in 11 countries, Atilla Varga and I have found that effects on economic growth and development of necessity and opportunity entrepreneurship vary greatly. We found that neces- sity entrepreneurship has no effect on economic development while opportunity entrepre- neurship has a positive and significant effect. 1 After the fall of the Berlin Wall many uneconomical factories were closed in Central Europe as economies became integrated into the global economy. Those workers who had jobs in the plants and factories of the former socialist countries were productive members of soci- ety. However, as factories were closed one after another, many of these workers found them- Zoltan Acs How Is Entrepreneurship Good for Economic Growth? Zoltan Acs is University Professor in the School of Public Policy at George Mason University. Previously he was Chief Economic Advisor, U.S. Small Business Administration, Associate Director of CIBER at the University of Maryland; Research Fellow at the Science Center Berlin; Research Associate at the Institute on Western Europe at Columbia University; and served on the faculty of Middlebury College and of the University of Illinois. © 2006 Tagore LLC innovations / winter 2006 97 INNOV0101FINAL.qxd 2/23/2006 11:51 AM Page 97