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The Economic Impact on Firm Starts and Exits

Posted by: Mark Marich on November 19, 2009 Source: Policy Dialogue on Entrepreneurship

As part of Global Entrepreneurship Week (Nov. 16 – 22), the Organisation for Economic Co-operation and Development (OECD) today unveiled the first indications of how the economic slump has impacted entrepreneurship in the United States and 11 other countries in 2008 and most of 2009. The Timely Indicators report shows that firm formation declined and exits increased, which economists say could have significant implications for job creation.

Firm entries have slowed following the economic crisis, although there are differences in timing among countries. The United States and the United Kingdom (and to a lesser extent Spain) observed a decrease in firm entries already in 2007, when most other countries were still reporting a steady rise. The subsequent strong fall in firm entries during 2008 and 2009 has resulted in fewer firm entries than in 2005 (except for France and Belgium). The researchers warn that the data for the first half of 2009 should be interpreted with care, however, given the reported signs of economic recovery in recent months in some countries.

“Our research shows that new and young firms have been the primary source of new jobs in the United States over the past three decades,” said Robert Litan, vice president of Research & Policy at the Ewing Marion Kauffman Foundation, which funded the study. “While business exits are a normal part of a healthy entrepreneurial ecosystem, this study shows a concurrent increase in exits and decrease in formation throughout OECD countries as a whole. This should send a giant red flag to policymakers around the globe to pull out all the stops to encourage and support business startups so we can create new jobs and sustain a worldwide economic recovery.”

According to the report, Eastern European countries and Brazil—countries undergoing a high degree of restructuring—are experiencing higher rates of firm births, deaths and even growth. Employment creation and destruction through firm births and deaths seem to form an important part of the employment churning in countries. The report also shows the services industry having a higher degree of entrepreneurial dynamism compared to manufacturing.

The Timely Indicators report is part of the second annual publication of the joint OECD-Eurostat Entrepreneurship Indicator Programme (EIP), which uses official government data to measure performance in 23 countries. Similar to last year’s publication, the 2009 EIP presents indicators on entrepreneurial performance. This EIP report, however, has expanded in breadth and scope to reinforce the multiple measures of internationally comparable data on entrepreneurial activity from 18 OECD countries in 2008 to 23 countries and regions. In addition, the report presents for the first time a broad set of indicators on entrepreneurial determinants (access to finance, regulatory framework, knowledge creation and diffusion, market conditions, entrepreneurial capabilities and entrepreneurial culture), allowing countries to benchmark themselves in terms of entrepreneurial policies and the entrepreneurship environment.  To access the report, visit www.oecd.org/statistics/measuringentrepreneurship.


Category:  General 

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