Entrepreneurs in Economic Reform

New firms have been created at a striking rate the transition countries. The entrants generated welfare gains by creating jobs, supplying consumer goods, constraining the market power of the state firms, and building reform momentum. We summarize evidence on the relative role of entrepreneurs and the state in economic reform. Early in the transition, the government’s main contribution to entrepreneurship was to avoid impeding the entrepreneurs’ self help. Later, the entrepreneurs came to need positive assistance from the state: institutions to support contracting and finance.