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Reforms Put New Firms on the Rise Around the World

Posted by: Mark Marich on October 29, 2012 Source: Policy Dialogue on Entrepreneurship

A new survey funded by the Kauffman Foundation suggests that most economies are recovering from the sharp drops in new firm registration triggered by the 2008 global financial crisis. The improvement may very well likely been bolstered by government reforms, according to the analysis of new World Bank data.

In 2011, more than 60 percent of the world's economies saw a faster pace of new firm registration than in the year before. That is almost double the 2009 rate of 34 percent, although it still lags behind the 2007 rate of 75 percent, according to the World Bank Group Entrepreneurship Database, which is updated every two years.

Reforms that significantly reduce the time, cost, days and number of steps required to start a business—generally over a 50 percent reduction in any given measure recorded by the World Bank Group's Doing Business series—have a real and sustainable impact on new firm registration, according to an analysis by economists in the World Bank's Development Research Group.

For example, Rwanda registered 4,500 new firms in 2011, up from 1,136 in 2008. This was in the wake of 2009 reforms that, among other things, eliminated six steps to register a business and shortened the process time from 14 to three days.

"The new data offer policymakers and researchers new insights into global trends in formal entrepreneurship, which will lead to more evidence-based decisions," said Kaushik Basu, the World Bank's chief economist and senior vice president.

The Entrepreneurship Database is based on the only global survey of formal entrepreneurship that can be compared across countries and over time. Data on new firm registration are collected directly from business registries in 130 economies. The database is funded by the Ewing Marion Kauffman Foundation and the World Bank Group.

Rates of new firm registration differ significantly from country to country, reflecting variations in their performance of Doing Business indicators. For every 1,000 working-age adults, four new limited-liability companies are registered in high-income economies. That compares with just one in developing countries.

Countries improve the most when the reforms are large and broad. That is especially true in economies with a relatively weaker business environment, said Leora Klapper, a lead economist at the World Bank's Development Research Group.

"If policymakers are willing to make significant reforms and make it easier for entrepreneurs to formally register their business, then there is real potential to significantly increase new firm registration," said Klapper, who co-authored the research paper with Inessa Love, an associate professor at the University of Hawaii.

Category:  Global  Tags:  World Bank, Kauffman, IFC,

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