The Divide between Subsistence and Transformational Entrepreneurship

Abstract

This paper argues that it is crucially important to differentiate between two very distinct sets of entrepreneurs: subsistence and transformational entrepreneurs. Recent evidence suggests that people engaging in these two types of entrepreneurship are not only very distinct in nature but that only a negligible fraction of them transition from subsistence to transformational entrepreneurship. These individuals vary in their economic objectives, their skills, and their role in the economy. Most important, they seem to respond very differently to policy changes and economic cycles. Yet most development policies aimed at fostering entrepreneurship focus on subsistence entrepreneurship in the hope of creating transformational entrepreneurs. I argue that unless we understand the differences between those two types of entrepreneurs more clearly, many policy interventions may have unintended consequences and may even have an adverse impact on the economy.