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Small Business Activity Does not Measure Entrepreneurship

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. In order to unambiguously identify high-impact entrepreneurs we focus on self-made billionaires (in USD) who appear in Forbes Magazine’s list and who became wealthy by founding new firms. We identify 996 such billionaire entrepreneurs in fifty 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.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 959.

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Length: 27 pages
Date of creation: 06 Mar 2013
Date of revision: 26 Jan 2014
Publication status: Published as Henrekson, Magnus and Tino Sanandaji, 'Small Business Activity Does Not Measure Entrepreneurship' in Proceedings of the National Academy of Sciences (PNAS), 2014, pages 1760-1765.
Handle: RePEc:hhs:iuiwop:0959
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