58286 Entrepreneurship Snapshots 2010 Measuring the Impact of the Financial Crisis on New Business Registration 2010 Entrepreneurship Snapshots 2010 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: 202-473-1000 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 findings, 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. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522- 2422; e-mail: pubrights@worldbank.org. 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 financial 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 Contents Preface v Acknowledgments vi Overview 1 Methodology 6 Defining Entrepreneurship 6 Coverage and Data Sources 7 Sample Selection 8 Data and Statistics 12 Entrepreneurship and the Business Environment 12 Regulations and Governance 12 Modernization of the Business Registration Process 17 Entrepreneurship and the Financial Crisis 20 Conclusion 23 Appendix: Entry Density by Economy 2004­09 24 Notes 28 References 30 Boxes 1 Exclusion of Offshore Financial Centers 10 2 Effect of Political Events in Thailand 11 3 How Has Germany's GmbH Reform Affected New Firm Registration? 17 4 How Did Modernizing Business Registration Systems Affect New Business Registration? 19 Figures 1 Average Entry Density by Income Group 3 2 Entry Density and Doing Business Rank 4 M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N iii 3 Entry Density by Income Group 5 4 Entry Density and the Informal Economy 9 5 Firm-Level Selection 10 6 Average Entry Density by Region, 2004­09 12 7 Entry Density and Financial Development 13 8 Entry Density and Ease of Starting and Closing a Business 16 9 Entry Density and Governance Index and Corporate Tax Rate 18 10 Internet Registration and Starting a Business 20 11 Growth in New Firms by Income Group, 2005­09 21 12 Financial Depth and the Creation of New Firms 22 13 Crisis-Related Turbulence and the Creation of New Firms 22 Map Average Entry Density by Economy, 2004­09 14 iv ENTREPRENEURSHIP SNAPSHOTS 2010 Preface The 2010 World Bank Group Entrepre- working-age adults. The data show that neurship Snapshots (WBGES) provides a more dynamic business creation occurs unique indicator of new business registra- in countries that provide entrepreneurs tion around the world that can be used with a stable legal and regulatory regime, to study the factors that foster dynamic a rapid and inexpensive business registra- private sector growth. Now in its fourth tion process, more flexible employment year, the WBGES measures entrepre- regulations, and low corporate taxes. The neurial activity in 112 developing and data also show that nearly all economies high-income economies over the period experienced a sharp drop in business 2004­09. The data offer a distinctive and registration during the crisis. This drop timely snapshot of the impact of the 2008 is more pronounced in economies with financial crisis on entrepreneurial activity. higher levels of financial development and There is wide variation in new busi- economies more affected by the crisis. ness registration across economies. On The results in the WBGES can help average, in high-income economies about guide effective policy making and deliver four new firms register every year for new capabilities for identifying the impact every 1,000 working-age adults; in low- of reforms. Future WBGES editions will and middle-income economies, the fig- shed light on the pace of recovery in new ure is less than one new fi rm per 1,000 business registrations following the crisis. M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N v Acknowledgments This report was prepared by a team led by Cecile Fruman, Andrei Mikhnev, Juan Leora Klapper and Inessa Love and made Manuel Quesada Delgado, and E. J. up of Elena Cirmizi, Caroline Giraud, Reedy. and Douglas Randall. Anat Lewin con- This project was developed in collabo- tributed to the section on modernizing the ration with and fi nancially supported by business registration process. the Ewing Marion Kauffman Foundation, The report team is grateful for the Investment Climate Advisory Services (the valuable comments provided by col- International Finance Corporation and leagues across the World Bank Group. the World Bank), and the Development Special thanks go to Asli Demirgüc-Kunt, Research Group (the World Bank). vi ENTREPRENEURSHIP SNAPSHOTS 2010 Overview Business owners and would-be entrepre- new projects (Campello, Graham, and neurs are often at the mercy of macroeco- Campbell 2009). nomic conditions. This was never more New businesses are likely to have been true than in 2008 and 2009, when the even more severely affected by the cri- financial crisis reverberated throughout sis than mature businesses Even in non- the global economic system following the crisis times, new and young firms tend failure of several U.S. and Western Euro- to be more constrained than older fi rms pean banking institutions. The first phase which often have established reputations of the crisis affected mainly the United and enjoy easier access to fi nance (Cha- States, the United Kingdom, and other vis, Klapper, and Love 2010). Given the developed countries. After the collapse sudden scarcity of credit and the uncer- of Lehman Brothers, in September 2008, tain economic outlook, it is reasonable to the crisis rapidly spread around the globe, assume that that entrepreneurs wanting to reaching even the most remote destina- start a new business or register an exist- tions. Markets plummeted, global trade ing informal business were hit especially collapsed, and millions of people were left hard by the downturn. Until now, how- unemployed. ever there has been a lack of comprehen- Most financial institutions were sive evidence to support this assumption. adversely affected, either directly, New data from the 2010 World Bank through their connections with failed Group Entrepreneurship Snapshots banks, or indirectly, through interbank (WBGES), a longitudinal study of entre- credit market linkages. In addition, preneurial activity in 112 economies, policy measures aimed at tightening the allow the impact of the financial crisis on regulatory requirements on capital made new business registration worldwide to banks reluctant to lend. As a result, a be studied for the fi rst time. These data, severe credit crunch developed, and even presented here, also allow for the cross- the largest borrowers experienced tight- economy longitudinal study of entrepre- ening of their financial access. The credit neurial activity that assesses the determi- crunch resulted in fi rms reducing their nants of formal business creation and its investment, cutting back on research and relationship to business environment and development, and passing up attractive economic growth. M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 1 The impact of the 2008­09 fi nancial comparable metric for exploring the rela- crisis on new business creation should be tionship between the Doing Business of special interest given the importance indicators and the number of newly regis- of entrepreneurs and young fi rms to the tered firms. As both Doing Business and continued dynamism of the modern mar- WBGES data are collected over time, it is ket economy; it is well established that possible to evaluate the impact of reforms a robust entry rate of new business can on new business registration. foster competition and economic growth The 2010 WBGES includes data on (Djankov and others 2002; Klapper, the number of limited liability firms in Laeven, and Rajan 2006). In the United 112 economies that registered for the first States, for instance, young jobs were an time between 2004 and 2009. Data were important source of net job creation collected directly from the registrar of between 1980 and 2005 (Haltiwanger, companies, the entry point for entrepre- Jarmin, and Miranda 2009; Stangler and neurs joining or transitioning to the for- Litan 2009). As policy makers and busi- mal sector.1 The 2010 WBGES builds on ness leaders worldwide seek to restart the earlier editions of the data and incorpo- engines of economic growth in the wake rates improvements in methodology and of the crisis, they may find a renewed increased participation by low-income focus on entrepreneurship to be par- countries, notably those in Sub-Saharan ticularly valuable. In this vein, the 2010 Africa. As outlined in the second section WBGES offers a timely contribution to of the report, the data use the same unit the study of new business creation. of measurement used by Doing Business. Now in its fourth year, the WBGES Because of constraints on data availabil- was established in 2004 as a biennial ity, the WBGES covers only the formal complement to the World Bank's Doing business sector, even though informal Business database, which provides businesses make up a large share of the annual measures of the business environ- economy in less developed countries. ment that now span 41 indicators and The main variable of interest is the 183 economies, enabling policy makers, density of new business entry, defi ned as business leaders, and researchers to trace the number of newly registered limited the evolution of the business environment liability companies per 1,000 working- in a given economy and compare indica- age (15­ 64) people. 2 The data allow tors across a range of diverse economies. researchers to explore the relationship The WBGES provides an internationally between the business environment and 2 ENTREPRENEURSHIP SNAPSHOTS 2010 new firm creation, as well as assess the impact of the 2008­09 financial crisis on FIGURE 1 Average Entry Density by Income Group entrepreneurship. This report summarizes the first analy- 5.0 sis of the WBGES data. It focuses on the 4.21 following questions: 4.0 Entry density 1. How does firm creation vary around 3.0 2.43 the world, in particular with the level of 2.0 economic and financial development? 1.0 0.77 2. What is the relationship between 0.33 entrepreneurship and the business 0 High Upper Lower Low environment? income middle middle income 3. How did the financial crisis affect SOURCE : World Bank staff. entrepreneurial activity in the formal NOTE : Data are based on all 94 economies in the final sample, using sector? 2004­09 economy averages, trimmed at 99 percent. 4. What factors determine how severely the crisis affected new firm creation? The data also show a strong positive With respect to the fi rst question, the relationship between entry density and the data show wide variation in new entry development of fi nancial markets: coun- across countries. Rates of business regis- tries with more developed fi nancial mar- trations are significantly correlated with kets experience a higher volume of reg- the level of development in a country: istrations because finance is more widely the average entry density is 4.21 in high- available to support new businesses. income countries, 2.43 in upper-middle- With respect to the second question, income countries, 0.77 in lower-middle- the data show that various components income countries, and 0.33 in low-income of a country's business environment are countries (figure 1).3 This means that on significant indicators of new fi rm regis- average there are about four new firms trations, even after controlling for the registered every year per 1,000 people in overall level of economic development. As industrial countries and less than one new a summary measure of the various busi- fi rm registered per 1,000 people in low- ness environment indicators in a country, and lower-middle-income countries. the Doing Business data show countries' M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 3 overall ranks. These ranks can be used as required to start a business, and the num- a measure of business environment qual- ber of procedures required); country-level ity. Figure 2 shows the strong positive cor- governance; and the corporate tax rate. relation between a country's overall rank The section of the report on modern- in Doing Business and entry density. ization of business registration processes These results suggest that dynamic examines the recent trend toward mod- business creation occurs in countries that ernization of the business registration provide entrepreneurs with good gov- process. It shows that using the Internet ernance, a strong legal and regulatory to register a business allows for faster environment, and reduced red tape. As and cheaper registration, even when only the section below on regulation and gov- part of the process is handled online. ernance shows, significant relationships As a result, entry density is also higher exist between entry density and the ease in countries with modernized registries. of starting a business (expressed as the These results are consistent with earlier cost of registration, the number of days work on the efficient allocation of inputs and other resources to entrepreneur- ial activities (Jovanovic 1982) and the FIGURE 2 impact of regulatory reform and insti- Entry Density and Doing Business Rank tutional quality (Demirgüc-Kunt, Love, and Maksimovic 2006; Mullainathan 10 and Schnabl 2009). 8 Regarding the third question, time- Entry density series data provide a snapshot of the 6 impact of the 2008­09 global fi nancial 4 crisis on new fi rm creation. Data for the final sample of 94 countries show that 2 nearly all economies experienced a sharp 0 drop in business entry during the crisis 0 50 100 150 200 (figure 3). Only 20 percent of countries Doing Business Rank experienced growth in business entry between 2008 and 2009, down from SOURCE : World Bank staff. NOTE : Data are based on all 94 economies in the final sample, using 74 percent between 2006 and 2007. With 2004­09 economy averages. the onset of the financial crisis, new busi- ness creation slowed, first in advanced 4 ENTREPRENEURSHIP SNAPSHOTS 2010 economies and then in the rest of the world, paralleling the spread of the crisis. FIGURE 3 Entry Density by Income Group Regarding the fourth question, the data show that countries with more devel- 6 oped financial markets experienced larger High income 5 contractions in new fi rm creation, most Entry density likely because of the credit crunch that 4 Upper middle income has characterized this crisis. Withdraw- 3 als of finance tend to have a large impact 2 on start-ups when fi nance plays a larger 1 Lower middle income role in economic activity. However, finan- Low income 0 cial development is important for business 2004 2005 2006 2007 2008 2009 creation. In addition, the degree to which the crisis affected new firm creation is SOURCE : World Bank staff. correlated with measures of crisis severity: NOTE : Figure based on 83 economies in the final sample with 2009 countries that suffered more severe crises data, trimmed at 99 percent. also had the largest drops in new registra- tions, as discussed below. suggests that disparities in economic The new data set fills the gaps that growth between advanced and developing existed until now in entrepreneurial economies can narrow as a result of the activity around the world. Earlier cross- growth in entrepreneurial activity (Galor economy measurements of entrepreneur- and Stelios 2006). At the country level, ial activity are limited, but the data that U.S. census data have been used to dem- do exist demonstrate that much can be onstrate that young firms, not small firms learned about the relationship between as is commonly believed, are the principal entrepreneurship and economic growth force behind net job creation (Haltiwan- through the development of longitudinal ger, Jarmin, and Miranda 2009; Stangler data sets (Wennekers and others 2005). and Litan 2009). Cross-economy data have been used to Several advances in the study of entre- demonstrate a relationship between new preneurship have been made using the firm creation and levels of economic 2008 WBGES database. Klapper, Amit, development (van Stel, Carree, and and Guillen (2010) fi nd significant rela- Thurik 2005). Furthermore, from an evo- tionships between entrepreneurial activity lutionary economics perspective, research and indicators of economic and financial M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 5 development and growth, the quality of Forthcoming editions of the database will legal and regulatory environment, and provide insight into how the fiscal and governance. Dutta, Roy, and Sobel (2009) monetary policies implemented by govern- use the 2008 WBGES database to dem- ments in response to the crisis affected the onstrate that media freedom has a large revival of new fi rm creation. It will also and significant positive impact on entre- be possible to examine the precrisis finan- preneurship across countries. Busch and cial and institutional characteristics that Lassmann (2009) use the same data set to encouraged a rapid and strong recovery demonstrate a positive correlation between in new business registration in the wake self-employment rates of U.S. immigrants of the crisis. This report hypothesizes that and the degree of entrepreneurial activity although economies with more developed in their countries of origin. fi nancial markets were hit harder by the The WBGES database will be updated crisis, they will enjoy stronger and quicker biennially for the foreseeable future. recoveries in new firm creation. Methodology This section begins by defining entrepre- differences in legal systems, sectors, and neurship. It then describes the coverage, economic structures (UN 2005). data sources, and sample selection used in The concept of entrepreneurship lacks the study. a common language. Joseph Schumpeter defi nes entrepreneurship as the assump- Defining Entrepreneurship tion of risk and responsibility in design- In order to measure entrepreneurship ing and implementing a business strategy in a way that is universally comparable, or starting a business (Schumpeter 1911). this study employs a methodology that Gough (1969) defines an entrepreneur can be applied across heterogeneous legal as a person who undertakes and oper- regimes and economic systems. Previous ates a new enterprise and assumes some efforts have been made in this regard, but accountability for the inherent risks. For most of them focused solely on the devel- practitioners, entrepreneurship has gener- oped world and did not take into account ally been viewed as the process of creating 6 ENTREPRENEURSHIP SNAPSHOTS 2010 new wealth. The entrepreneurial process report). Limited liability corporations centers on the discovery, creation, and are the most prevalent business form in profitable exploitation of markets for most economies. Limited liability is a con- goods and services.4 Therefore, for the cept in which the financial liability of the purposes of the analysis in this study, fi rm's members is limited to the value of entrepreneurship is defined as "the activi- their investment in the company. A lim- ties of an individual or a group aimed at ited liability corporation is a separate initiating economic enterprise in the for- legal entity that has its own privileges and mal sector under a legal form of business." liabilities. Although the laws on business It is important to create a standard registration vary greatly across countries, unit of measurement. Generally, entre- the approach to legal entities is largely preneurial activities are carried out by uniform: any business with a unique legal businesses. However, because of the lack entity (or "corporate personhood") sepa- of a universally agreed upon definition rate from its owners must be registered.6 of what constitutes a business, economic, This study collects information on all cor- statistical, or legal defi nitions have been porations regardless of their economic or used. For instance, the United States bases staff size, as in many economies neither its business statistics on establishments. fi nancial information nor the number of Canada reports average labor units. employees is collected, making it impos- Countries reporting to Eurostat and the sible to identify firm size. United Nations Economic Commission on Europe use various measures, includ- Coverage and Data Sources ing legal (enterprises), geographical (local This report builds on earlier WBGES unit), and activity-based (kind of activity data and incorporates improvements in unit) measures for their business statis- methodology and increased participation tics.5 The proposed unit of measurement by low-income countries, notably in Sub- must take into account the availability of Saharan Africa. In 2010, 112 economies the data, its consistency across countries, participated in the survey--the highest its relevance to entrepreneurship, and its coverage to date--including 20 first-time focus on the formal sector. participants.7 The WGBES gathers data on corpora- Surveys requesting data on the num- tions, defi ned as private companies with ber of newly registered limited liability limited liability (the same definition used fi rms were sent by email and fax to offi- by the World Bank's Doing Business cial government sources. In 70 percent of M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 7 economies, surveys were completed and business registries do not provide accu- data provided directly by the registrar of rate tallies of these fi rms. The only way companies, the government entity respon- to enumerate firms in the informal sec- sible for recording and maintaining infor- tor is through economic censuses, which, mation on new and existing fi rms. Data because of their high costs, are infre- for other countries were collected from quently conducted. The relevance of the national statistical offices and chambers of informal sector to job creation, particu- commerce. In India data were purchased larly in developing economies, is undeni- from D&B, because nationally represen- able. The "shadow economy" is excluded tative business registry data on corpora- only because of lack of data. tions were not otherwise available.8 There is a strong and inverse relation- Government officials completed either ship between the size of the informal paper or electronic surveys. The database economy (defi ned as percentage of GDP) was checked for consistency across econo- and new business density (defi ned as the mies and over time. Quality assurance ratio of new firms to working-age popula- measures included comparing data with tion, scaled by 1,000). This relationship is published official data or related country shown in figure 4. case studies. The literature highlights the potential advantages of formal sector participation, Sample Selection including police and judicial protection The 2010 WBGES is not a comprehensive (and less vulnerability to corruption and study of all firms in the 112 economies the demand for bribes), access to formal surveyed. In order to provide an accurate credit institutions, the ability to use formal and internationally relevant data analysis, labor contracts, and greater access to for- certain exclusions were made at the fi rm eign markets (Schneider and Enste 2000). and economy levels. Because firms that choose to remain infor- mal are often subsistence-type businesses, Firm-Level Selection they may be unable to realize their full The selection of fi rms was based on sev- growth potential. "High-growth" entre- eral criteria. Each is described below. preneurship is thus most likely to happen through formally registered firms. For Formal sector firms. This study is limited example, of the more than 100,000 firms to the formal private sector. Firms that estimated to exist in Côte d'Ivoire, only operate informally are excluded because about 4,000 are registered fi rms, but the 8 ENTREPRENEURSHIP SNAPSHOTS 2010 formal sector accounts for more than 60 percent of GDP and 90 percent of value FIGURE 4 Entry Density and the Informal Economy added (Klapper and Richmond 2009). 10 New firms. The database does not include the number of total or closed firms, 8 Entry density because most countries do not accurately 6 collect data on total active or inactive firms. The stock number of total firms 4 may thus include many closed fi rms that 2 did not formally deregister. Closure costs are generally low in high-income econo- 0 0 10 20 30 40 50 60 70 80 mies: in Norway and Singapore, for exam- Informal economy (% GDP) ple, they represent less than 1 percent of the estate's value, as defined by Doing SOURCES : World Bank staff; Schneider, Buehn, and Montenegro 2010. Business. In contrast, these costs can be N O T E : Data are based on all 94 economies in the final sample, using significant in lower-income economies. In 2004­09 economy averages. the Dominican Republic and Uganda, for example, closing costs exceed 30 percent of the estate's value (World Bank 2009a). is, the flow rather than the stock) is mea- The process of removing inactive firms sured here. This exclusion prevents entry from the registry varies widely across rates (new firms normalized by total countries. In Sweden, for example, fi rms firms) from being calculated. are removed from the registry if they do not submit financial statements and an Companies with limited liability. Part- audited account within 11 months of the nerships and sole proprietorships are not end of the financial year.9 Austria and the considered, because these types of entities Slovak Republic remove firms that fail differ substantially with respect to their to fi le fi nancial reports for two consecu- definition and regulation worldwide. Sev- tive years.10 In other economies, such as eral legal systems (such as Peru's) do not Cambodia and Madagascar, formal firm require these entities to be registered for closure mechanisms do not exist (World statistical or tax purposes.11 The focus Bank 2009a). Consequently, only the here is thus solely on limited liability com- number of newly registered firms (that panies (figure 5). M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 9 FIGURE 5 BOX 1 Firm-Level Selection Exclusion of Offshore Financial Centers New economic units Offshore financial centers, generally in small Formal sector Informal sector economies, are excluded from the analysis because many of the new firms registered Self- Micro- in these countries do not fit the definition employment businesses of entrepreneurship. In 2008 average entry Sole density (the number of new firms divided Corporations Partnerships proprietorships by the size of the working-age population) in 16 offshore centers excluding the British Measured businesses Virgin Islands was 13.8, compared with 2.4 in the rest of the world. If offshore financial cen- SOURCE : World Bank staff. ters were included, these economies, which together make up less than 1 percent of the Economy-Level Selection total working-age population of the sample, would account for 8 percent of the new firms The selection of economies was based on several criteria. Each is described below. created in 2008. Exclusion of offshore financial centers. The British Virgin Islands provides an extreme Data collected from economies catego- illustration of the distorting effects of off- rized by the International Monetary Fund shore financial centers. In 2007 the country and the Financial Stability Forum as off- had 77,022 newly registered corporations-- shore financial centers are excluded from about four new firms for each working-age the analysis, because registered entities in citizen. The average for industrial countries these countries may not fit the defi nition was about four new firms per 1,000 working- of entrepreneurship defined here (box 1).12 age citizens. The information provided by these econo- mies likely reflects a nontrivial number SOURCE : World Bank staff. of shell companies, defined as companies 10 ENTREPRENEURSHIP SNAPSHOTS 2010 that are registered for tax purposes but or resources to process the data once col- are not active. Such corporations may lected. Some countries, such as Ethiopia, be set up for illegal purposes, such as require firms to register with the national tax evasion, or formed in anticipation of government only if they plan to do busi- attracting funding. They may also come ness outside of their regional borders. into existence when a corporation has Other countries are unwilling to share failed and its operations have ceased but their information. For this reason, many its shell remains. countries, mostly developing economies, are not included. Technical/organizational limitations. An additional caveat is necessary when Decentralization of business regis- examining data over time: events some- tries, lack of professional and technical times have a dramatic impact on new firm resources, and inefficient legal support registration. Political crises, corruption of the data collection process made the scandals, and other external shocks can aggregation of the registration data at the affect new business density (box 2). They national level impossible in some cases. have been accounted for when consider- Several countries do not collect data on ing the time series data presented in the newly created business or lack the tools next section. BOX 2 Effect of Political Events in Thailand Political crises, corruption scandals, and other Martial law 35 external shocks can affect the level of new busi- 30 New businesses (thousands) ness density. They should be accounted for when 25 20 considering time series data. 15 10 In several economies, events dramatically 5 affected new firm registration. New firm creation 0 2000 2002 2004 2006 2008 in Thailand grew at an average annual rate of 12 percent between 2000 and 2005. On September 19, 2006, a military junta overthrew the interim gov- ernment and declared martial law, which lasted until January 2007. New firm creation dropped sharply between 2005 and 2007. M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 11 Data and Statistics The analysis focuses primarily on new FIGURE 6 business entry density, calculated as the Average Entry Density by Region, 2004­09 number of newly registered firms as a 5.0 percentage of the economy's working- 4.21 age (15­64) population, normalized by 4.0 1,000. In order to maximize consistency Entry density 3.0 and coverage, the analysis focuses on the 2.26 2.0 period 2004­09 (see map). The appendix 1.31 0.79 lists entry density by economy for this 1.0 0.77 0.63 0.58 period. 0 High Europe & Latin South East Middle Sub- The final sample of 94 economies income Central America Asia Asia & East & Saharan Asia & the Pacific North Africa reveals significant disparities across Caribbean Africa regions, ranging from an entry density of 0.58 in Sub-Saharan Africa to 4.21 in SOURCE : World Bank staff. high-income economies (figure 6).13 Fig- NOTE : Data are based on all 94 economies in the final sample, using ure 7 shows that entry density is signifi- 2004­09 economy averages, trimmed at 99 percent. cantly correlated with per capita GDP and financial development. Entrepreneurship and the Business Environment This section begins by examining four Regulations and Governance indicators of regulations and governance. Four indicators from the World Bank's It then examines the modernization of the Doing Business report facilitate analysis business registration process. of the impact of the business environment 12 ENTREPRENEURSHIP SNAPSHOTS 2010 FIGURE 7 Entry Density and Financial Development a. Density and domestic credit b. Density and per capita GDP 10 10 8 8 Entry density Entry density 6 6 4 4 2 2 0 0 0 50 100 150 200 0 10,000 20,000 30,000 40,000 Domestic credit (% GDP) GDP per capita (current 2000 US$) SOURCE : World Bank staff. N O T E : Data are based on all 94 economies in the final sample, using 2004­09 economy averages. and barriers to entry on new firm cre- (measured as a percentage of the estate's ation. The first indicator, the cost of start- value), includes court fees as well as fees ing a business (measured as a percentage of insolvency practitioners, independent of the economy's per capita income), cap- assessors, lawyers, and accountants (fig- tures all official fees and fees for legal and ure 8, panel d).14 Employment rigidity--a professional services involved in incorpo- composite of subindexes on difficulty of rating a business (figure 8, panel a). The hiring, rigidity of hours, and difficulty of strong relationship between the cost of redundancy--is highly correlated with all starting a business and new firm creation of the Doing Business measures as well as is also reflected in a case study from Ger- the variable of interest here, entry density. many (box 3). A formal econometric analysis extends The second and third indicators mea- these simple correlations. To ensure that sure the time and the number of pro- better business environment is related to cedures necessary to start a business subsequent business registration, cross- (figure 8, panels b and c). The fourth country regressions average new registra- indicator, the cost of closing a business tions over 2005­09, using the business M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 13 MAP Average Entry Density by Economy, 2004­09 ENTRY DENSITY (number of newly registered limited liability firms as a percentage of 1,000 working-age population) <1 OFFSHORE ECONOMIES 1 ­ 1.99 (excluded from the analysis): 2 ­ 2.99 Belize Liechtenstein British Virgin Islands Luxembourg 3 ­ 3.99 Cook Islands Malta 4 ­ 4.99 Costa Rica Mauritius 5 Cyprus Netherlands Antilles AUGUST 2010 Dominica Panama DATA UNAVAILABLE Hong Kong SAR, China Singapore Ireland Switzerland Jersey, Channel Islands (UK) Vanuatu SOURCE : World Bank staff. NOTE : Some countries use WBGES 2008 data (United States) or estimations (China). 14 ENTREPRENEURSHIP SNAPSHOTS 2010 This map was produced by the Map Design Unit of the World Bank. The boundaries, colors, denominations, and any other information shown on IBRD 37975 this map do not imply, on the part of the World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 15 FIGURE 8 Entry Density and Ease of Starting and Closing a Business a. Cost of starting a business b. Time required to start a business 10 10 8 8 Entry density Entry density 6 6 4 4 2 2 0 0 0 50 100 150 200 0 50 100 150 200 Percentage of per capita income Days c. Procedures required to start a business d. Cost of closing a business 10 10 8 8 Entry density Entry density 6 6 4 4 2 2 0 0 0 50 10 15 20 0 10 20 30 40 Number of procedures Percentage of estate's value SOURCE : World Bank staff, based on data from Doing Business database. N O T E : Data are based on all 94 economies in the final sample, using 2004­09 economy averages. environment variables from 2004 as for subsequent new business registra- explanatory variables. The results show tion, which suggests a causal relationship that business environment is important between initial business environment and 16 ENTREPRENEURSHIP SNAPSHOTS 2010 of country-level governance (Kaufmann, BOX 3 Kraay, and Mastruzzi 2006). Panel a of How Has Germany's GmbH Reform figure 9 shows the strong and positive cor- Affected New Firm Registration? relation between entry density and the On November 1, 2008, Germany intro- composite governance index.15 The gov- duced a law that created a simplified form ernance composite is measured on a scale of the Gesellschaft mit beschränkter Haftung of ­2.5 to 2.5, with higher values indicat- (GmbH), the most common type of business ing better governance. Breaking down organization. Under the new law, minimum the index into its components reveals that capital of 25,000 can be paid by setting up the most significant factors affecting new a reserve fund that receives 25 percent of the business creation are regulatory quality company's profits until the minimum capital and government effectiveness. amount is reached. Some 12,000 of these new Comparison of entry density with the corporations, known as UGs, were registered corporate tax rate for 77 countries (fig- ure 9, panel b) reveals a strong negative in 2009, without significant decreases in regis- correlation between new firm creation trations of other legal forms. Overall, new firm and the tax rate.16 The strong relation- registration increased from 64,840 in 2008 to ship between entry density and gover- 73,260 in 2009, an increase of 13 percent. nance and entry density and corporate tax rate are upheld when controlling for the subsequent registrations. To make sure income level of the economy in a multi- that the results are driven by the business variate econometric analysis (see Klapper environment rather than the overall level and Love 2010). of development in a country, the analysis controls for GDP per capita, which, as Modernization of the Business evidenced in figure 7, is also significantly Registration Process and positively related to entry density. The Doing Business indicators remain signifi- An important component of the business cant predictors of entry density (Klapper environment is the business registry itself. and Love 2010). Business registries are public entities gen- In order to account for the economic, erally established by commercial or civil political, and fi nancial conditions of the code mandates and managed by the min- surveyed countries over time, the analy- istries of commerce or justice. They are sis compares entry density with measures responsible for recording and maintaining M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 17 FIGURE 9 Entry Density and Governance Index and Corporate Tax Rate a. Entry density and composite governance index b. Entry density and corporate tax rate 10 10 8 8 Entry density Entry density 6 6 4 4 2 2 0 0 -2 -1 0 1 2 3 0 40 60 80 Governance composite index Corporate tax rate SOURCE : World Bank staff, based on Kaufmann, Kraay, and Mastruzzi 2009; KPMG 2010. NOTE : Data are based on all 94 economies in the final sample, using 2004­09 economy averages. certain details on new and existing firms do in the United Kingdom)(World Bank within their jurisdiction, as well as con- 2009b).17 trolling the formation of new fi rms and Reforms that improve the business the renewal of or changes to existing ones. registration processes can spur greater The main purpose of business registries is formal sector participation (box 4). to guarantee that businesses comply with They are often implemented as part of regulations and to make such information a broader private sector reform package available to the public. Their composi- (Bruhn 2009). By leveraging information tion varies greatly across countries, as and communication technologies (ICTs), evidenced by the fact that they can coex- government-to-business e-services and in ist with real estate (property) registries particular electronic business registries (as they do in Mexico and Moldova), be (eBRs) have been shown to increase effi- managed by chambers of commerce or ciency, effectiveness, and data reliability professional associations (as it is in Syria), and accuracy, as well as to save the time or operate as stand-alone agencies (as they and budgets of company registries and 18 ENTREPRENEURSHIP SNAPSHOTS 2010 entrepreneurs alike (Hanna 2010; Klap- by government agencies, reducing costs per, Amit, and Guillen 2010). and leveraging more advanced technologies In addition, eBRs have the potential to than would otherwise have been accessible deliver "interoperable" government services or affordable. to entrepreneurs, by, for example, linking Responses on ICT­related business entry business registration with taxation, social questions were received from 70 econo- services, collateral, and other registrations. mies, allowing the continuum of business Automated online single windows, or one- registry technology to be analyzed across stop-shops, are good examples of the time the sample. During 2009, the average new and cost savings such interoperability can entry density was highest in economies in deliver to both service user and provider. which the complete business registration ICTs also offer possibilities for sharing process was available online (figure 10, infrastructure, such as government data panel a). Average new entry density was centers and cloud computing capabilities, lowest where no Internet registration was BOX 4 How Did Modernizing Business Registration Systems Affect New Business Registration? Many economies implemented business regis- 1.4 2005 2006 2007 2008 2009 tration reforms between 2005 and 2009, often as 1.2 part of broader private sector reform packages. Entry density 1.0 The impact of these reforms on new business 0.8 registration was significant. Entry density more 0.6 than doubled in Belarus after the implemen- 0.4 tation of a one-stop shop in 2006. El Salvador 0.2 simplified the legalization of accounting books 0 Belarus El Salvador Rwanda and publication requirements and lowered the minimum capital requirement. More than 4,400 new firms were registered in El Salvador in 2009, up from 1,680 in 2007. Rwanda saw a 167 percent increase in new firm registration between 2008 and 2009, fol- lowing the elimination of a notarization requirement, the enablement of online publication, and the con- solidation of company registration procedures. SOURCE : World Bank staff. M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 19 FIGURE 10 Internet Registration and Starting a Business a. Internet registration and entry density b. Internet registration and ease of starting a business 4.0 40 40 Entry density 2009 Days Costs Percentage of per capita income 3.0 30 30 Days 2.0 20 20 1.0 10 10 0 0 0 No Incomplete Complete No Incomplete Complete Internet Internet Internet Internet Internet Internet registration registration registration registration registration registration SOURCE : World Bank staff based on Doing Business data. possible. Internet registration that also in which no Internet registration was pos- involved nonelectronic steps, such as a sible had the highest cost and required notary or in-person document delivery the greatest number of days to start the requirements, occupied the middle ground. business. Economies in which Internet Economies in which complete Inter- registration was possible but required net registration is possible had the lowest nonelectronic steps again fell in between average starting costs in 2009. Economies (figure 10, panel b). Entrepreneurship and the Financial Crisis The data show that the lagged and uneven path of the crisis. The crisis first affected impact of the financial crisis on new firm a handful of advanced economies, such creation largely mirrors that of the general as the United States and Iceland, then 20 ENTREPRENEURSHIP SNAPSHOTS 2010 spread to other economies with highly (figure 11). High- and upper-middle- developed and globally exposed financial income economies experienced the crisis systems, particularly those with a reliance more quickly and more severely than low- on external financing. Last to be affected and lower-middle-income economies. In were emerging economies and those heav- 2008 there was almost no growth in new ily dependent on exports, which suffered firms in high-income economies, whereas as a result of the decline in international lower-middle and lower-income econo- trade (see Claessens and others 2010). mies experienced a more than 10 percent This section traces the progression of the increase in new firm registrations. By decline in new firm creation, examines the 2009 every income group of economie- heterogeneous effect of the crisis on new sexperienced a sharp drop in new firm business registrations, and compares these registration. A few economies did not trends to other measures of turbulence. experience declines in new business reg- New firm creation gradually increased istration during the crisis (see raw data between 2004 and 2007 (see figure 3). The in the appendix); as a group, low-income increase was more pronounced in higher- income countries, a trend confi rmed by a formal regression model (Klapper and FIGURE 11 Love 2010). With the onset of the fi nan- Growth in New Firms by Income Group, 2005­09 cial crisis in 2008, the trend reversed and entry density declined. The drop occurred 40 35 Low income Growth in new businesses first in high- and upper-middle-income 30 economies, a trend confi rmed by regres- 25 20 Lower middle sion analysis. The crisis also affected new income 15 business entry in lower-income groups, 10 although the impact was milder and new 5 High income entry did not decrease in most lower- 0 -5 Upper middle income middle-income economies until 2009. In -10 many low-income economies, the crisis -15 2005 2006 2007 2008 2009 manifested itself as stagnation rather than a decrease in entry density. SOURCE : World Bank staff. The annual percentage change in new NOTE : Figure based on 67 economies in the final sample with com- fi rm registrations offers insight into the plete 2004­09 data, trimmed at 5 and 95 percent. impact of the crisis across income groups M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 21 economies experienced the most mod- FIGURE 12 est decline in the number of new firms in Financial Depth and the Creation of New Firms 2009. 60 An econometric analysis of the het- Growth in new businesses erogeneous effects of the crisis yields sev- 40 eral interesting results. First, economies (%) 2007­09 20 with higher GDP per capita experienced 0 sharper declines in new registrations dur- -20 ing the crisis. This outcome is expected, -40 as the crisis originated primarily in devel- oped economies; it is also consistent with -60 0 20 40 60 80 100 120 140 160 180 the work of Lane and Milesi-Ferretti Domestic credit (% GDP) (2010), who find that advanced econo- mies were more severely affected than S O U R C E S : World Bank staff and World Bank­World Development other economies by the crisis. Economies Indicators statistics. in which financial markets played a larger role in the domestic economy (as mea- sured by the ratio of domestic credit to FIGURE 13 GDP) also experienced sharper contrac- Crisis-Related Turbulence and the Creation of New Firms tions in new firm creation during the cri- sis (figure 12). 60 One plausible channel for this result is Growth in new businesses 40 through firm's access to external finance, (%) 2007­09 20 which is more important in countries with 0 higher levels of financial development (Rajan and Zingales 1998). This channel -20 suggests that countries in which start-ups -40 are more reliant on and intertwined with -60 banking were more likely to experience -1.5 -1.0 -0.5 0 0.5 1.0 1.5 (less severe) (more severe) larger contractions in new fi rm creation, Crisis intensity as a result of the credit crunch that char- acterized the financial crisis (that is, where SOURCES : World Bank staff ; Didier and Calderon 2009. fi nance is more important for fi rms, the withdrawal of fi nance is likely to have a 22 ENTREPRENEURSHIP SNAPSHOTS 2010 larger negative impact). The results on the crisis. Their index of financial turbulence impact of financial development are sug- is highly correlated with the percentage gestive of this channel. The analysis also change in new firms over the crisis period. reveals that financial development is a Figure 13 shows that countries that were more powerful predictor of the impact of more affected by the fi nancial crisis also the crisis on new fi rm creation than per experienced the sharpest decline in new capita GDP, which is notable given the firm creation. high correlation between the two. The regression analysis confirms the The degree to which the crisis affected correlation between measures of crisis new firm creation is also highly correlated turbulence and new firm creation. The with measures of crisis severity. Didier high vulnerability to the crisis is signifi- and Calderon (2009) develop an index of cantly associated with a drop in new firm "turbulence," which measures the degree creation, even after controlling for the to which a country was affected by the impact of financial development. Conclusion The analysis in this report facilitates a is highly correlated with measures of cri- more comprehensive examination of the sis severity. The data also show that the relationship between business creation, crisis had more negative impact on new business environment, and the recent business creation in countries with higher financial crisis. The findings suggest that levels of financial development. In future dynamic business creation occurs in econ- work, these entrepreneurship indicators omies that reduced red tape and provided a can be used in conjunction with other stable investment climate. Nearly all econ- measures--such as the Doing Business omies experienced a sharp drop in busi- indicators--in the development of policy ness entry during the crisis. The degree to recommendations to promote private sec- which the crisis affected new firm creation tor development and growth. M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 23 Appendix Entry Density by Economy 2004­09 Entry density Country 2004 2005 2006 2007 2008 2009 Albania 0.52 0.53 0.60 0.91 1.24 0.84 Algeria 0.53 0.48 0.40 0.35 0.48 0.44 Argentina 0.56 0.55 0.61 0.62 0.57 0.46 Armenia 1.40 1.22 1.47 1.86 1.72 1.28 Australia 6.61 6.44 5.91 6.38 -- -- Austria 0.60 0.65 0.68 0.66 0.65 0.58 Azerbaijan 0.95 1.05 0.95 0.94 1.22 0.93 Belarus 0.23 0.24 0.25 0.50 0.72 0.80 Belgium 3.70 3.74 4.10 4.46 4.62 4.28 Belize -- -- -- 4.59 4.05 3.01 Bhutan 0.02 0.03 0.03 0.03 0.05 0.04 Bolivia 0.27 0.29 0.32 0.36 0.40 0.43 Bosnia and Herzegovina -- -- -- 0.83 0.58 -- Brazil 1.91 1.94 1.85 2.10 2.40 2.38 Bulgaria 4.63 5.73 6.91 9.81 8.27 7.20 Burkina Faso 0.06 0.07 0.05 0.08 0.07 0.08 Cambodia 0.13 0.18 0.20 0.32 0.30 0.22 Canada 6.54 7.20 8.64 9.13 8.93 7.56 Chile 1.96 2.12 2.31 2.39 2.12 -- Colombia -- 0.92 0.97 1.03 1.10 1.07 Cook Islands -- -- -- -- 3.24 12.30 Costa Rica 9.56 11.02 12.93 12.65 11.87 8.78 Croatia 2.26 2.72 3.29 3.51 3.36 2.57 Cyprus 16.55 20.05 27.30 38.17 31.47 20.30 Czech Republic 2.00 1.93 2.25 2.87 3.11 3.00 Denmark 4.89 5.87 7.35 7.98 7.09 4.57 24 ENTREPRENEURSHIP SNAPSHOTS 2010 Entry density Country 2004 2005 2006 2007 2008 2009 Dominica 2.55 3.50 4.05 4.09 4.09 3.30 Dominican Republic -- -- -- -- -- 2.13 Egypt, Arab Rep. 0.14 0.09 0.13 0.17 0.13 El Salvador -- 0.46 0.49 0.47 0.74 1.19 Estonia 6.04 6.85 8.72 8.10 -- -- Ethiopiaa 0.02 0.02 0.03 0.03 0.03 0.03 Finland 2.46 2.59 2.99 3.93 3.85 3.37 France 2.78 2.86 3.04 3.53 3.52 3.08 Gabon 2.63 3.43 3.21 3.72 5.39 4.27 Georgia 1.06 1.30 1.86 2.22 2.60 2.32 Germany 1.12 1.21 1.19 1.19 1.19 -- Ghana 0.48 0.58 0.59 0.72 -- -- Greece 0.77 0.73 1.06 1.18 -- -- Guatemala 0.65 0.64 0.71 0.70 0.75 0.68 Hong Kong SAR, China 10.39 12.98 14.64 15.66 18.62 19.19 Hungary 3.51 3.22 3.30 4.08 6.41 6.26 Iceland 13.01 14.96 16.01 18.22 12.62 12.84 India 0.05 0.06 0.03 0.07 0.12 -- Indonesia 0.14 0.16 0.16 0.16 0.24 0.18 Ireland 5.82 6.35 6.99 6.74 5.22 4.67 Israel 5.29 4.57 4.41 4.57 4.46 -- Italy 1.81 1.90 1.94 2.01 1.89 1.78 Jamaica 1.08 0.99 1.14 1.16 1.21 1.16 Japan 1.31 1.33 1.73 1.48 1.28 -- Jersey, Channel Islands (UK) 40.13 46.96 56.88 65.85 44.62 37.57 Jordan 0.37 0.58 0.67 0.56 0.64 0.74 Kazakhstan 2.33 2.95 3.13 3.48 2.78 2.59 Kenya 0.35 0.38 0.43 0.79 0.85 -- Korea, Rep. 1.68 0.93 1.89 1.56 1.72 -- Kosovo 0.06 0.16 0.18 0.23 0.11 0.12 Kyrgyz Republic 0.69 0.75 0.88 1.04 1.07 1.26 Latvia 4.62 5.55 7.12 7.64 5.71 4.62 M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 25 Entry density Country 2004 2005 2006 2007 2008 2009 Liechtenstein -- -- -- -- 44.13 25.11 Lithuania 1.53 1.82 2.14 2.65 2.19 2.18 Luxembourg 5.71 6.27 6.98 7.38 -- -- Macedonia, FYR -- -- 5.66 6.55 6.80 5.63 Madagascar -- -- 0.10 0.10 0.11 0.07 Malawi 0.05 0.06 0.06 0.09 0.11 0.08 Malaysia 2.64 2.52 2.51 2.77 2.60 2.55 Maldives 2.90 3.15 3.89 4.05 3.89 3.09 Malta 9.12 8.78 10.77 9.81 9.98 9.52 Mauritius 5.88 7.30 8.55 10.08 10.08 7.33 Mexicob -- 0.56 0.59 0.66 0.67 0.61 Moldova 1.40 1.48 1.67 1.93 1.82 1.32 Montenegro -- -- 4.19 5.99 3.89 0.92 Morocco 0.53 0.59 0.90 1.25 1.31 1.28 Netherlands 2.25 2.62 3.26 3.10 3.38 3.10 Netherlands Antilles 8.40 8.45 8.68 9.41 10.09 7.99 New Zealand 23.71 23.54 24.14 27.03 21.59 17.08 Niger 0.01 0.01 0.00 0.00 0.01 0.00 Nigeria 0.32 0.38 0.45 0.59 0.79 0.79 Norway 3.62 4.65 5.95 5.47 4.49 -- Oman 0.72 0.83 1.29 1.87 2.13 1.67 Pakistan 0.03 0.05 0.06 0.05 0.04 0.03 Panama 3.70 6.31 0.79 4.87 2.29 0.26 Peru 1.44 1.69 1.92 2.38 2.71 2.65 Philippines 0.26 0.25 0.24 0.22 0.23 0.19 Poland -- 0.48 0.48 0.50 0.46 0.52 Portugal 3.54 3.68 4.02 4.39 4.51 3.92 Romania 5.80 5.95 5.99 6.62 6.49 3.66 Russian Federation -- 4.95 4.24 4.10 4.22 2.61 Rwanda 0.08 0.08 0.11 0.15 0.20 0.51 Senegal 0.18 0.18 0.20 0.21 0.29 0.22 Serbia -- 2.02 2.14 2.24 2.15 1.94 26 ENTREPRENEURSHIP SNAPSHOTS 2010 Entry density Country 2004 2005 2006 2007 2008 2009 Singapore 5.20 5.80 6.29 7.46 7.18 7.40 Slovak Republic 2.63 3.30 3.53 4.01 4.37 4.04 Slovenia -- 2.59 2.75 3.51 4.43 4.16 South Africa 1.25 1.45 1.27 1.14 0.93 0.77 Spain 4.82 5.04 5.42 5.31 3.92 2.92 Sri Lanka 0.30 0.34 0.37 0.32 0.32 0.29 Suriname 0.24 0.53 0.37 0.35 0.54 0.44 Sweden 3.29 3.49 4.04 4.72 4.64 4.09 Switzerland 2.57 1.73 4.98 3.55 2.58 4.88 Tajikistan 0.22 0.21 0.21 0.20 0.24 0.48 Thailand 0.70 0.72 0.67 0.55 0.60 0.59 Togo -- -- 0.01 0.02 0.04 -- Tunisia 0.73 0.80 0.92 1.27 1.14 1.23 Turkey 0.87 0.99 1.08 1.12 0.97 0.87 Uganda 0.55 0.61 0.58 0.60 0.63 0.72 Ukraine -- 0.85 0.97 1.19 0.95 0.60 United Kingdom 9.77 8.30 9.19 11.05 9.11 8.05 Uruguay 3.28 3.46 2.90 3.81 2.92 2.08 Uzbekistan 0.44 0.46 0.54 0.58 0.58 0.78 Vanuatu 4.49 4.07 6.60 4.45 3.46 2.18 Virgin Islands (UK) 3,718 3,486 3,804 4,389 3,449 2,605 Zambia 0.55 0.60 0.62 0.89 1.03 0.88 SOURCE : World Bank staff. N O T E : Offshore economies in italics. -- = Not available. a . Data for Ethiopia include only federally registered firms. b . Data for Mexico do not include Mexico City. M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 27 Notes 1. Other terms for the registrar of companies include business register (Australia), the reg- istry of commerce (France), companies registration offices (Ireland), public registries of property and commerce (Mexico), mercantile registries (Spain), companies house (the United Kingdom), and incorporation offices (the United States). 2. The appendix contains all of the data in the report. 3. Income groups are according to 2010 World Bank classifications (based on 2008 gross national income per capita). 4. See Shane and Venkataraman (2000) and Venkataraman (1997) for a discussion of alternative definitions. 5. See http://www.census.gov/econ/ for the United States; http://strategis.gc.ca/epic/site/ sbrp-rppe.nsf/en/rd00827e.html for Canada; Council Regulation (EEC) No. 696/93 of March 15, 1993, on the statistical units for the observation and analysis of the produc- tion system in the European Community, Official Journal L 076, 30/03/1993; and http:// www.unece.org/stats/publications/53metadaterminology.pdf for the United Nations Eco- nomic Commission on Europe. 6. The registration of businesses without legal entity (professional associations, individual merchants) is voluntary in some countries, such as Spain. 7. The complete data set and sources are available at http://econ.worldbank.org/research/ entrepreneurship. 8. The complete list of sources is available at http://econ.worldbank.org/research/ entrepreneurship. 9. The Companies Act of Sweden is contained in the Swedish Code of Statutes, SFS 2005:551 (Aktiebolag 2005:551) and the Companies Ordinance in SFS 2005:559. Com- plete information is available at http://www.notisum.se/Rnp/SLS/lag/20050551.htm. 10. See Firmenbuch Gesetz, Register of Companies Act§ 40 with regard to Austria and http://www.justice.gov.sk for the Slovak Republic. 11. See http://www.rree.gob.pe. 12. See Zoromé (2007) for the complete list of offshore economies: http://www.imf.org/ external/np/mae/oshore/2000/eng/back.htm. 13. Data are not available for the entire period for all countries. The period 2004­09 is used in the analysis because it provides the most complete sample. 28 ENTREPRENEURSHIP SNAPSHOTS 2010 14. Details on the methodology used for the Doing Business indicators can be found at http://www.doingbusiness.org/MethodologySurveys/. 15. The composite governance index aggregates six subindexes: voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption. Complete data are available at info.worldbank.org/governance/wgi/index. asp. 16. Complete data are available at http://www.kpmg.com.sg/publications/Tax_ CorporateIndirectTaxRateSurvey.pdf. 17. The OECD­Eurostat Entrepreneurship Indicators Programme (EIP) has established a framework for using consistent definitions and methodologies to collect indicators of new firm creation across countries. These statistics draw on improved electronic links of information across government agencies to measure the number of active registered firms (Ahmad and Hoffman 2008). M E A S U R I N G T H E I M PAC T O F T H E F I N A N C I A L C R I S I S O N N E W B U S I N E S S R E G I S T R AT I O N 29 References Ahmad, N., and A. Hoffman. 2008. "A Framework for Addressing and Measuring Entrepreneurship." OECD Statistics Working Paper 2, Organisation for Economic Co-operation and Development, Paris. Bruhn, M. 2009. "Does Business Registration Reform Increase Entrepreneurial Activity? Finance and PSD Impact." The Lessons from DECRG-FP Impact Evaluations, no. 2 (February). 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The · 3 trees Office of the Publisher has chosen to print · 1 million British Entrepreneurship Snapshots 2010 on recycled thermal units of paper with 100 percent postconsumer fiber in total energy accordance with the recommended standards · 246 pounds of net for paper usage set by the Green Press Initia- greenhouse gases tive, a nonprofit program supporting publish- (CO2 equivalent) ers in using fiber that is not sourced from · 3,325 gallons of endangered forests. For more information, visit waste water www.greenpressinitiative.org. · 310 pounds of solid waste T he World Bank Group Entrepreneurship Snapshots (WBGES), now in its fourth year, tracks new business registration around the world; data from this survey can be used to study the factors that foster dynamic private sector growth. The measurement of entrepreneurship in 112 developing and high-income economies over 2004­09 offers a distinctive and timely snapshot of the impact of the 2008 financial crisis on entrepreneurial activity. WBGES 2010 results can help guide effective policy making and deliver new capabilities to identify the impact of reforms. The study reveals wide variation in new business registration. On average, about four new firms register every year for every 1,000 working-age individuals in high-income economies, while there is less than one new firm registered per 1,000 individuals in low- and middle-income economies. More dynamic business creation occurs in economies that provide entrepreneurs with a stable legal and regulatory regime, a fast and inexpensive business registration process, more flexible employment regulations, and low corporate taxes. The data also show that during the crisis, nearly all economies experienced a sharp drop in business registration--a drop that was more pronounced in countries with higher levels of economic development and in those more affected by the crisis. http://econ.worldbank.org/research/entrepreneurship ISBN 978-0-8213-8476-3 SKU 18476