While the global financial crisis impacted almost all new entrepreneurs, it began in developed countries and hit their entrepreneurs harder. As a result, in richer countries, new business creation dropped sharply amid the crisis. In contrast, new business registrations in many low-income countries didn’t change much. These are the findings in The 2010 World Bank Group Entrepreneurship Snapshots, which presents data collected about newly registered companies in 112 countries and was released recently.
The report authors, Leora F. Klapper and Inessa Love, both senior economists at the World Bank’s Development Research Group, explain that new business registrations in many low-income countries held up mainly because those countries tend to have lower rates of new business creation to begin with, and economic shocks there tend to bring smaller changes. However, it also helped that some countries recently introduced new measures to modernize business registration.
“We are providing the first evidence that the recent financial crisis has caused a quick and sharp drop in the number of new registrations of limited-liability firms,” said Leora F. Klapper. “The findings also suggest that more dynamic business registration occurs in countries that provide entrepreneurs with reduced red tape and a stable investment climate.”
The report, along with a companion searchable database, is funded by the Ewing Marion Kauffman Foundation and the World Bank Group. The World Bank has conducted the survey every two years since 2004, but this year’s report incorporated improved methodology and attracted more low-income countries as participants, especially in sub-Saharan Africa.
As I mentioned in my post earlier this week concerning measuring entrepreneurship around the world, we are only at the beginning of a new period of increased attention to the importance of tracking the health of startups in an economy. A short 2 minute video highlights some clips from some economic leaders commenting on this. As more political leaders and policymakers recognize the role entrepreneurship plays in their economies, studies such as this will prove vital to guiding smart policy. Stay tuned during Global Entrepreneurship Week Nov. 15-21, 2010, where this question will be taken up around the globe.