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Small Business Activity Does not Measure Entrepreneurship

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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. 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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  • Henrekson, Magnus & Sanandaji, Tino, 2013. "Small Business Activity Does not Measure Entrepreneurship," Working Paper Series 959, Research Institute of Industrial Economics, revised 26 Jan 2014.
  • Handle: RePEc:hhs:iuiwop:0959
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    Keywords

    Entrepreneurship; Innovation; Institutions; Regulation; Self-employment;

    JEL classification:

    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • P14 - Economic Systems - - Capitalist Systems - - - Property Rights

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