Entrepreneurship in Developing Countries

 

The inadequacy, in terms of both quantity and quality, of infrastructure in 

developing countries is another important factor which limits successful business entry and 

growth and thus demonstration externalities.  Writing on the Chinese economy, Liao and 

Sohmen find that, 

Lack of infrastructure may limit areas of future entrepreneurial growth. 

Technology is a relatively labor-intensive and capital-unintensive industry. 

Likewise, service industries typically require little initial capital input. Yet 

other areas that will require privatization in the future may face obstacles 

due to the lack of an efficient credit system and lack of necessary 

infrastructure. ([115], pp.31-32)  

 

In addition to physical infrastructure inadequacies, entrepreneurs in developing countries 

such as Cyprus also face the inadequacies of “policy infrastructure.” ([116], p.562)  The 

Economic Commission for Africa (ECA), in their review of the effects of energy 

infrastructure on international trade, find that the low penetration of electricity in Africa 

limits the ability of countries to trade ([117]).  Indeed, the scarcity of good infrastructure 

directly increases the costs of doing business and reduces the reliability of production, 

thereby increasing costs indirectly ([117]).  The ECA also find that, 

 

Jena Economic Research Papers 2009 - 023

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 …small firms cannot afford to make costly investments to meet their 

power needs.  Given that SMEs are greatly affected by unreliable power 

supply, the growth of these firms and the generation of employment are 

negatively impacted. ([117])  

 

Similar conclusions can be drawn from the lack of infrastructure related to transportation 

(i.e. roads and ports), communication (i.e. telephones, internet penetration) and land 

improvement systems (i.e. irrigation).