Introduction

While entrepreneurship has long been mentioned in the economic literature as one of the most important or even the most important elements in economic activity, it has recently regained considerable attention in the economic literature as a vital force that drives innovation and economic growth. In the same spirit as Keynes, William Baumol emphasized nearly fifty years later, “It has long been recognized that the entrepreneurial function is a vital component in the process of economic growth” (Baumol,1968, p. 65), and Lazear (2002) claimed more recently, “The entrepreneur is the single most important player in the economy.”

In this chapter, we aim to investigate the fundamentals of these statements. In particular, we investigate the hypothesis that entrepreneurship drives innovation and economic growth. To do so, we lay out different aspects of entrepreneurship in Section 9.2. Then we discuss how entrepreneurship drives innovation and consequently economic performance. Section 9.4 presents empirical evidence for Germany and Section 9.5 concludes.

What Is the Economic Function of Entrepreneurship?

While the above quotes are rather recent, the role of the entrepreneur as major driver in the economy has long been acknowledged.