2014

Small Business Activity Does not Measure Entrepreneurship

Reprint No. 2014:10

Author(s): Magnus Henrekson and Tino SanandajiYear: 2014 Title: Proceedings of the National Academy of Sciences of the United States of America (PNAS) Volume (No.): 111 (5) Pages: 1760–1765
Preliminary version

Small Business Activity Does not Measure Entrepreneurship Magnus Henrekson and Tino Sanandaji


Entrepreneurship policy mainly aims to promote innovative Schumpeterian entrepreneurship. However, the rate of entrepreneurship is commonly proxied using quantity-based metrics, such as small business activity, the self-employment rate, or the number of startups. We argue that those metrics give rise to misleading inferences regarding high-impact Schumpeterian entrepreneurship. To unambiguously identify high-impact entrepreneurs we focus on self-made billionaires (in US dollars) who appear on Forbes Magazine’s list and who became wealthy by founding new firms. We identify 996 such billionaire entrepreneurs in 50 countries in 1996–2010, a systematic cross-country study of billionaire entrepreneurs. The rate of billionaire entrepreneurs correlates negatively with self-employment, small business ownership, and firm startup rates. Countries with higher income, higher trust, lower taxes, more venture capital investment, and lower regulatory burdens have higher billionaire entrepreneurship rates but less self-employment. Despite its limitations, the number of billionaire entrepreneurs appears to be a plausible cross-country measure of Schumpeterian entrepreneurship.

The pdf file also includes supporting information (Appendix).

 


Reference:
Henrekson, Magnus och Tino Sanandaji (2014), "Small Business Activity Does not Measure Entrepreneurship". Proceedings of the National Academy of Sciences of the United States of America (PNAS) 111(5), 1760–1765.

Magnus Henrekson

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Andreas Bergh, IFN and Lund University, is one of the authors of this book. The Timbro Sharing Economy Index is the first global index of the sharing economy. The index has been compiled using traffic volume data and scraped data, and provides a unique insight into the driving factors behind the peer-to-peer economy.

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