Entrepreneurship Snapshots 2010

The World Bank

Description

The 2010 World Bank Entrepreneurship Snapshots (WBGES) provide a unique indicator of business creation around the world and facilitate the investigation of the factors that foster dynamic private sector growth. Now in its fourth year, the WBGES measure entrepreneurial activity in 115 developing and industrial countries over the six year period 2004-2009. Importantly, the data offer a distinctive and timely snapshot of the impact of the 2008-2009 financial crisis on entrepreneurial activity.
There is wide variation in new business creation across countries: On average, about four new firms register every year for every 1,000 working age individuals in industrialized countries, while there is less than one new firm registered in low and low middle income countries. The data show that dynamic business creation occurs in countries that provide entrepreneurs with good governance, a strong legal and regulatory environment, and reduced red tape. The data also show that nearly all countries experienced a sharp drop in business entry during the crisis. However, industrialized countries experienced the crisis more quickly and more severely than other income groups. In addition, the degree to which the crisis impacted new firm creation is correlated with measures of crisis severity. Finally, we find that countries in which financial markets play a larger role in the domestic economy experienced sharper declines in new business registrations as a result of the crisis that paralyzed financial markets. These results can guide effective policymaking and deliver new capabilities for identifying the impact of reforms.

Sujets

• Doing business
• Finance
• Récession
• Private sector
• Reform
• Startup
• Entrepreneurship
• Crisis
• Governance
• Private sector development

Informations

• Publié par: world-bank-publications
• Publié le: 18 novembre 2010
• Nombre de lectures: 42
• EAN13: 9780821384763
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

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Measuring the Impact of the Financial Crisis on New Business Registration

THE WORLD BANK Washington, D.C.

© 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: [phone] Internet: www.worldbank.org All rights reserved 1 2 3 4 13 12 11 10 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The fi ndings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundar- ies, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorse- ment or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Recon- struction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: [phone]; fax: [phone]; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Offi ce of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: [phone]; e-mail: [e-mail]. ISBN: 978-0-8213-8476-3 eISBN: 978-0-8213-8637-8 DOI: 10.1596/978-0-8213-8476-3 Library of Congress Cataloging-in-Publication Data Entrepreneurship snapshots 2010 : measuring the impact of the fi nancial crisis on new business regis- tration.  p. cm.  ISBN 978-0-8213-8476-3 1. Entrepreneurship. 2. New business enterprises. 3. Financial crises. I. World Bank.  HB615.E634658 2011  338’.04—dc22  2010041011 Cover design: Critical Stages

Preface ƒ  v Acknowledgments ƒ  vi Overview ƒ  1 Methodology ƒ  6 Defining Entrepreneurship ƒ  6 Coverage and Data Sources ƒ  7 Sample Selection ƒ  8 Data and Statistics ƒ  12 Entrepreneurship and the Business Environment ƒ  12 Regulations and Governance ƒ  12 ƒ Modernization of the Business Registration Process 17 Entrepreneurship and the Financial Crisis ƒ  20 Conclusion ƒ  23 Appendix: Entry Density by Economy 2004–09 ƒ  24 Notes ƒ  28 References ƒ  30

C o n t e n t s

Boxes 1 Exclusion of Offshore Financial Centers ƒ  10 2 Effect of Political Events in Thailand ƒ  11 3 How Has Germany’s GmbH Re form Affected New Firm Registration? ƒ 17 4 How Did Modernizing Business Registration Systems Affect New Business Registration? ƒ  19 Figures  1 Average Entry Density by Income Group ƒ  3 2 Entry Density and Doing Business Rank ƒ  4

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3 Entry Density by Income Group ƒ  5 4 Entry Density and the Informal Economy ƒ  9 5 Firm-Level Selection  10 ƒ 6 Average Entry Density by Region, 2004–09 ƒ  12 7 Entry Density and Financial Development ƒ  13 8 Entry Density and Ease of Starting and Closing a Business ƒ  16 9 Entry Density and Governance Index and Corporate Tax Rate ƒ  18 10 Internet Registration and Starting a Business ƒ  20 11 Growth in New Firms by Income Group, 2005–09 ƒ  21 12 Financial Depth and the Creation of New Firms ƒ 22  13 Crisis-Related Turbulence and the Creation of New Firms ƒ  22

Map Average Entry Density by Economy, 2004–09 ƒ  14

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The 2010 World Bank Group Entrepre- neurship Snapshots (WBGES) provides a unique indicator of new business registra- tion around the world that can be used to study the factors that foster dynamic private sector growth. Now in its fourth year, the W BGES measures entrepre- neurial activity in 112 developing and high-income economies over the period 2004–09. The data offer a distinctive and timely snapshot of the impact of the 2008 financial crisis on entrepreneurial activity. There is wide variation in new busi- ness registration across economies. On average, in high-income economies about four new firms register every year for every 1,000 working-age adults; in low- and middle-income economies, the fig- ure is less than one new firm per 1,000

P r e f a c e

working-age adults. The data show that more dynamic business creation occurs in countries that provide entrepreneurs with a stable legal and regulatory regime, a rapid and inexpensive business registra- tion process, more flexible employment regulations, and low corporate taxes. The data also show that nearly all economies experienced a sharp drop in business registration during the crisis. This drop is more pronounced in economies with higher levels of financial development and economies more affected by the crisis. The results in the WBGES can help guide effective policy making and deliver new capabilities for identifying the impact of reforms. Future WBGES editions will shed light on the pace of recovery in new business registrations following the crisis.

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A c k n o w l e d g m e n t s

This report was prepared by a team led by Leora Klapper and Inessa Love and made up of Elena Cirmizi, Caroline Giraud, and Douglas Randall. Anat Lewin con- tributed to the section on modernizing the business registration process. The report team is grateful for the valuable comments provided by col- leagues across the World Bank Group. Special thanks go to Asli Demirgüc-Kunt,

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Cecile Fruman, Andrei Mikhnev, Juan Manuel Quesada Delgado, and E . J. Reedy. This project was developed in collabo- ration with and fi nancially supported by the Ewing Marion Kauffman Foundation, Investment Climate Advisory Services (the International Finance Corporation and the World Bank), and the Development Research Group (the World Bank).

Business owners and would-be entrepre- neurs are often at the mercy of macroeco- nomic conditions. This was never more true than in 2008 and 2009, when the financial crisis reverberated throughout the global economic system following the failure of several U.S. and Western Euro- pean banking institutions. The fi rst phase of the crisis affected mainly the United States, the United Kingdom, and other developed countries. After the collapse of Lehman Brothers, in September 2008, the crisis rapidly spread around the globe, reaching even the most remote destina- tions. Markets plummeted, global trade collapsed, and millions of people were left unemployed. Most f i na ncia l i nst it ut ions were adver s ely a f fe c ted , eit her d i re c t ly, through their connections with failed banks, or indirectly, through interbank credit market linkages. I n addition, policy measures aimed at tightening the regulatory requirements on capital made banks reluctant to lend. As a result, a severe credit crunch developed, and even the largest borrowers experienced tight- ening of their fi nancial access. The credit crunch resulted in firms reducing their investment, cutting back on research and development, and passing up attractive

O v e r v i e w

new projects (Campello, Graham, and Campbell 2009). New businesses are likely to have been even more severely affected by the cri- sis than mature businesses Even in non- crisis times, new and young firms tend to be more constrained than older fi rms which often have established reputations and enjoy easier access to finance (Cha- vis, Klapper, and Love 2010). Given the sudden scarcity of credit and the uncer- tain economic outlook, it is reasonable to assume that that entrepreneurs wanting to start a new business or register an exist- ing informal business were hit especially hard by the downturn. Until now, how- ever there has been a lack of comprehen- sive evidence to support this assumption. New data from the 2010 World Bank Group Entre pre n e urship S n apshot s (WBGES), a longitudinal study of entre- preneurial activity in 112 economies, allow the impact of the fi nancial crisis on new business registration worldwide to be studied for the fi rst time. These data, presented here, also allow for the cross- economy longitudinal study of entrepre- neurial activity that assesses the determi- nants of formal business creation and its relationship to business environment and economic growth.

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The impact of the 2008–09 financial crisis on new business creation should be of special interest given the importance of entrepreneurs and young firms to the continued dynamism of the modern mar- ket economy; it is well established that a robust entry rate of new business can foster competition and economic growth (Djankov and others 2002; Klapper, Laeven, and Rajan 2006). In the United States, for instance, young jobs were an important source of net job creation between 1980 and 2005 (Haltiwanger, Jarmin, and Miranda 2009; Stangler and Litan 2009). As policy makers and busi- ness leaders worldwide seek to restart the engines of economic growth in the wake of the crisis, they may find a renewed focus on entrepreneurship to be par- ticularly valuable. In this vein, the 2010 WBGES offers a timely contribution to the study of new business creation. Now in its fourth year, the WBGES was established in 2004 as a biennial complement to the World Bank’s Doing Bu sin e ss dat abase , wh ich prov ides annual measures of the business environ- ment that now span 41 indicators and 183 economies, enabling policy makers, business leaders, and researchers to trace the evolution of the business environment in a given economy and compare indica- tors across a range of diverse economies. The WBGES  provides an internationally

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comparable metric for exploring the rela- tionship between the Doing Business  indicators and the number of newly regis- tered firms. As both Doing Business and WBGES data are collected over time, it is possible to evaluate the impact of reforms on new business registration. The 2010 WBGES includes data on the number of limited liability firms in 112 economies that registered for the fi rst time between 2004 and 2009. Data were collected directly from the registrar of companies, the entry point for entrepre- neurs joining or transitioning to the for- mal sector. 1 The 2010 WBGES builds on earlier editions of the data and incorpo- rates improvements in methodology and increased participation by low-income countries, notably those in Sub-Saharan Africa. As outlined in the second section of the report, the data use the same unit of measurement used by Doing Business . Because of constraints on data availabil- ity, the WBGES covers only the formal business sector, even though informal businesses make up a large share of the economy in less developed countries. The main variable of interest is the density of new business entry, defi ned as the number of newly registered limited liability companies per 1,000 working- age (15– 64) people. 2  The data allow researchers to explore the relationship between the business environment and

new firm creation, as well as assess the impact of the 2008–09 fi nancial crisis on entrepreneurship. This report summarizes the fi rst analy- sis of the WBGES data. It focuses on the following questions: 1. How does firm creation vary around the world, in particular with the level of economic and financial development? 2. What is the relationship between entrepreneurship and the business environment? 3. How did the financial crisis affect entrepreneurial activity in the formal sector? 4. What factors determine how severely the crisis affected new fi rm creation? With respect to the fi rst question, the data show wide variation in new entry across countries. Rates of business regis- trations are significantly correlated with the level of development in a country: the average entry density is 4.21 in high- income countries, 2.43 in upper-middle- income countries, 0.77 in lower-middle- income countries, and 0.33 in low-income countries (figure 1). 3 This means that on average there are about four new firms registered every year per 1,000 people in industrial countries and less than one new firm registered per 1,000 people in low- and lower-middle-income countries.

F I G U R E 1 Average Entry Density by Income Group 5.0 4.21 4.0 3.0 2.43 2.0 1.0 0.77 0.33 0 High Upper Lower Low income middle middle income S O U R C E : World Bank staff. N O T E : Data are based on all 94 economies in the final sample, using 2004–09 economy averages, trimmed at 99 percent. The data also show a strong positive relationship between entry density and the development of fi nancial markets: coun- tries with more developed fi nancial mar- kets experience a higher volume of reg- istrations because fi nance is more widely available to support new businesses. With respect to the second question, the data show that various components of a country’s business environment are significant indicators of new firm regis- trations, even after controlling for the overall level of economic development. As a summary measure of the various busi- ness environment indicators in a country, the Doing Business data show countries’

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