Entrepreneurship and Economic Development

Leora F. Klapper & Juan Manuel Quesada Delgado

Development Economics Research Group Finance and Private Sector Development The World Bank

Why a dataset on entrepreneurship? To answer the demand of Governments and Policy Makers: Diagnosis of private sector Monitoring and Evaluation of policies Study the impact of regulatory, political, and macroeconomic institutional changes To better understand what drives entrepreneurs to transition from the informal to the formal sector How can greater formal sector participation / corporate registration be encouraged

How?
Goal:
To gather comparable data at the international level using a methodology that can be applied across heterogeneous legal, economical and political systems.

Questions:
What do we measure? How do we measure it? Where do we measure? Sources of information

Motto

To define a lower common denominator

What do we measure?: Entrepreneurial Activity The activities of an individual or a group of individuals aimed at initiating economic activities in the formal sector under a legal form of business.

How do we measure? Unit: Business

Any economic unit of the formal sector incorporated as a legal entity and registered in a public registry, which is capable, in its own right, of incurring liabilities and of engaging in economic activities and transactions with other entities.

Where do we count?
New Economic Units Informal Sector Formal Sector Self Employment

Micro Businesses

Civil Law

Common Law

Sole Proprietorship

Companies

Companies

Partnerships

Sole Proprietorship

New Businesses

Information source The business Registries

Reasons: Its the first step to enter the formal sector They tend to be the source of information for other government agencies Challenges: Differences in registration and annual filing requirements; identification of exited firms; re-registrations; paper based registries and decentralized registry systems.

Reforms that Affect Business Statistics: The Algerian Case

20000 18000 16000 14000 12000 10000 8000 6000 4000 2000

New sectoral requirements/ re-registrations

.

1995

1996

1997

1998

1999

2000

2002

2003

Survey Structure

Panel A: Total and new registrations recorded: - Total firms - New firms - Year-end 2000-05 Panel B: Number of corporations, by sector and size: - By sector: Manufacturing, Services, Financial, Wholesale & Retail Trade Panel C: The Role of Corporate Registries:

Panel A: Summary statistics, by region

Entry rates
12%

Business density rates

10.0%
9%

8.3% 7.6% 6.7% 3.8%

8.7% 6.2%

6%

3.1%

3%

1.4% 0.2%
0% Africa and Middle East Asia Europe and Central Asia Latin America and the Caribbean Industrialized Countries

19

20

10

29

Panel A: Summary statistics, by region



Average entry rate 2003-2005

Panel A: Summary statistics, by region

Average Business Density 2003-2005

49

Panel B: Summary statistics, by sector

Industrialized Countries 50% Developing Countries

40%

30%

20%

10%

0% Wholesale & Retail Trade Finance Insurance & Real Estate Industry Services

Panel B: Summary statistics, by sector


Wholesale & Retail Trade
100%

Finance Insurance & Real Estate

Industry

Services

80%

60%

40%

20%

0%

Canada

Madagascar

Panel C: The Role of Corporate Registries

What information are firms required to register? register?
- Is registration compulsory? - Incorporations/ closings/ re-registrations - Is annual financial information compulsory?

How do firms register? What information does the Registrar collect? - Corporate registrations, Internet domain names, Patents How is Registrar data distributed? - Accessibility by creditors, suppliers, lenders and private vendors (i.e. D&B) What is the relationship with new and total registrations? What is the relationship with the business environment? Case Studies

Panel C: What information does the Registrar collect?

real estate registration

internet domain names

patents

30%

20%

10%

0% Africa and Middle East Europe and Central Asia Latin America and the Caribbean Asia Industrialized countries

Panel C: What information are firms required to register?

Annual financial statements

100%

Firms closures

80%

60% 40%

20%

0% Africa and Middle East Europe and Central Asia Latin America and the Caribbean Asia Industrialized countries

Panel C: How do firms register?

Can firms registrer electronically?

80%

Is e-registration required?

60%

40%

20%

0%

Africa and Middle East

Europe and Central Asia

Latin America and the Caribbean

Asia

Industrialized countries

Panel C: How is Registrar data distributed?

Can data be accessed electronically?

Is there a fee?

80%

60%

40%

20%

0%
Africa and Middle East Europe and Central Asia Latin America and the Caribbean Asia Industrialized countries

Panel C: What is the relationship with new and total registrations? 

With e-registration
10% 8%

Without e-registration

Entry rates

6% 4% 2% 0%

Africa and Middle East

Asia

Industrialized Countries

Europe and Central Latin America and Asia the Caribbean

With e-registration
6% Bus iness density 5% 4% 3% 2% 1% 0% Africa and Middle East Asia

Without e-registration

Industrialized Countries

Europe and Central Latin America and the Asia Caribbean

Panel C: What is the relationship with the business environment?

With e-registration
50

Without e-registration

41
40

32
30 20

7.7
10 0

10

Average Duration in days

Average Number of Procedures

Difference between countries with and without e-registration

20

18.9

15

9.0
10

2.3
5

Average Duration in days

Average Number of Procedures

Average cost of entry

Panel C: EBR Country Cases


Evolution of Firm registration 1993-2005 (Guatemala, Sri Lanka and Jordan)

Guatemala
40000 30000 20000

Sri Lanka

Jordan

EBR Implementation

10000 8000 6000 4000

10000 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

2000 0

Stages of the EBR implementation / Evolution of firm registration (Guatemala) 40000 30000 20000 10000 0 1993 EBR implementation

Active Modernization plan Inactive Modernization plan

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Relationship with the Business Environment

Scatter-plots / Bivariate tests Multivariate tests

Scatter Plots
GDP per capita
Entry rate
20

GDP per capita

Density rate
25 20 15

15

10
10

5
5

0 0 10000 20000 30000 40000 50000

0 0 10000 20000 30000 40000 50000

GDP per capita b=.891 p=0.00, R^2=0.21, obs=80

GDP per capita

b=1.31, p=0.00, R =0.26, obs=82
2

Cost of Starting a Business

Entry rate (percent) 20 20 15 10 5 0 0 20 40 Cost to start a business
2

Governance
Entry rate (percent)

15

10

5 0 60

-2

-1 0 1 Governance (Kraay indicators average) b=1.57, p=0.00, R2 =0.23, obs=81

b=-.087, p=0.00, R =0.17, obs=63

Multivariate Test


Business Density Rates Log of GDP per capita GDP growth Cost to start a business Governance index (Kauffman, et al.) Constant Observations R-squared -8.930 [0.00]*** 80 0.26 1.426 [0.00]*** 0.191 [0.32] 0.614 [0.05]* 0.681 [0.06]* 1.093 [0.00]*** 0.286 [0.04]**

Entry Rates 0.410 [0.13] 0.192 [0.64]

-0.069 [0.01]*** 1.204 [0.07]* -2.215 [0.41] 82 0.28

-0.064 [0.01]*** 1.331 [0.08]* 6.030 [0.06]* 80 0.24

-0.176 [0.95] 64 0.25

-2.212 [0.22] 78 0.23

6.062 [0.02]** 62 0.2

Additional Information

IFC Entrepreneurship Data Base Web Page:

http://www.ifc.org/ifcext/sme.nsf/Content/Entrepreneurship+Database

Data Base Research paper: Entrepreneurship: New Data on Business Creation and How to Promote It Viewpoint: Entrepreneurship and firm formation across countries

Contacts:
Leora Klapper: lklapper@worldbank.org Juan Manuel Quesada: jmquesada@worldbank.org