Small Business Activity Does Not Measure Entrepreneurship

28 Pages Posted: 8 Mar 2013 Last revised: 17 May 2014

See all articles by Magnus Henrekson

Magnus Henrekson

Research Institute of Industrial Economics (IFN)

Tino Sanandaji

Research Institute of Industrial Economics (IFN)

Date Written: January 24, 2014

Abstract

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.

Keywords: Entrepreneurship, Innovation, Institutions, Regulation, Self-employment

JEL Classification: L5, M13, O31, P14

Suggested Citation

Henrekson, Magnus and Sanandaji, Tino, Small Business Activity Does Not Measure Entrepreneurship (January 24, 2014). IFN Working Paper No. 959, Available at SSRN: https://ssrn.com/abstract=2229197

Magnus Henrekson (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

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Tino Sanandaji

Research Institute of Industrial Economics (IFN) ( email )

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Stockholm, SE-102 15
Sweden
0723230694 (Phone)

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