Adapted from Leora F. Klapper & Juan Manuel Quesada Delgado Development Economics Research Group Finance and Private Sector Development The World Bank

Entrepreneurship and

Economic Development

Why a study on economics and 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

Requirement: To gather comparable data at the international level using a methodology that can be applied across heterogeneous legal, economical and political systems. Then Analysis the data for policy

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

How?

To define a lower common denominator

Motto

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

Formal Sector Informal Sector

Self Employment Micro Businesses

Partnerships Companies

Civil Law Common Law

New Businesses

Sole Proprietorship Sole Proprietorship Companies

Information source

The business Registries

Reasons: •  It’s 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

New sectoral requirements/ re-registrations

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1995 1996 1997 1998 1999 2000 2002 2003

.

•  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:

Survey Structure

6.7%

8.7%10.0%

8.3%

7.6%

3.1%

6.2%

3.8%

0.2%1.4%

0%

3%

6%

9%

12%

Africa and MiddleEast

Asia Europe and CentralAsia

Latin America andthe Caribbean

IndustrializedCountries

Entry rates Business density rates

19 5 20 10 29

Panel A: Summary statistics, by region

Average entry rate 2003-2005

ü

Panel A: Summary statistics, by region

Average Business Density 2003-2005

49

Panel A: Summary statistics, by region

Panel B: Summary statistics, by sector

0%

10%

20%

30%

40%

50%

Wholesale & RetailTrade

Finance Insurance &Real Estate

Industry Services

Industrialized Countries Developing Countries

0%

20%

40%

60%

80%

100%

Canada Madagascar

Wholesale & Retail Trade Finance Insurance & Real Estate Industry Services

ü

Panel B: Summary statistics, by sector

Panel C: The Role of Corporate Registries

•  What information are firms required to 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?

0%

10%

20%

30%

Africa andMiddle East

Europe andCentral Asia

Latin Americaand the

Caribbean

Asia Industrializedcountries

real estate registration internet domain names patents

Panel C: What information are firms required to register?

0%

20%

40%

60%

80%

100%

Africa andMiddle East

Europe andCentral Asia

Latin Americaand the

Caribbean

Asia Industrializedcountries

Annual financial statements Firms closures

Panel C: How do firms register?

0%

20%

40%

60%

80%

Africa and MiddleEast

Europe andCentral Asia

Latin Americaand the

Caribbean

Asia Industrializedcountries

Can firms registrer electronically? Is e-registration required?

Panel C: How is Registrar data distributed?

0%

20%

40%

60%

80%

Africa andMiddle East

Europe andCentral Asia

Latin Americaand the

Caribbean

Asia Industrializedcountries

Can data be accessed electronically? Is there a fee?

0%

1%

2%

3%

4%

5%

6%

Africa and MiddleEast

Asia IndustrializedCountries

Europe and CentralAsia

Latin America and theCaribbean

Bus

ines

s de

nsity

With e-registration Without e-registration

ü

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

0%

2%

4%

6%

8%

10%

Africa and MiddleEast

Asia IndustrializedCountries

Europe and CentralAsia

Latin America andthe Caribbean

Ent

ry ra

tes

With e-registration Without e-registration

9.0

2.3

18.9

0

5

10

15

20

Average Duration in days Average Number of Procedures Average cost of entry

Difference between countries with and without e-registration

32

41

107.7

0

10

20

30

40

50

Average Duration in days Average Number of Procedures

With e-registration Without e-registrationü

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

0

10000

20000

30000

40000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 20050

2000

4000

6000

8000

10000

Guatemala Sri Lanka Jordan

0

10000

20000

30000

40000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

ü

Panel C: EBR Country Cases

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

Stages of the EBR implementation / Evolution of firm registration (Guatemala)

Active Modernization plan Inactive Modernization plan

EBR implementation

EBR Implementation

Relationship with the Business Environment

•  Scatter-plots / Bivariate tests •  Multivariate tests

Entry rate

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

0

5

10

15

20

0 10000 20000 30000 40000 50000

GDP per capita

ü

Density rate

b=1.31, p=0.00, R2 =0.26, obs=82

0

5

10

15

20

25

0 10000 20000 30000 40000 50000

GDP per capita

GDP per capita GDP per capita

Scatter Plots

Entry rate (percent)

b=-.087, p=0.00, R 2 =0.17, obs=63

0 5

10 15 20

0 20 40 60 Cost to start a business

Entry rate (percent)

b=1.57, p=0.00, R2 =0.23, obs=81

0 5

10 15 20

-2 -1 0 1 2 Governance (Kraay indicators average)

Governance Cost of Starting a Business

ü

Business Density Rates Entry Rates

Log of GDP per capita

1.426 [0.00]***

0.614 [0.05]*

0.681 [0.06]*

1.093 [0.00]***

0.410 [0.13]

0.192 [0.64]

GDP growth 0.191 [0.32]

0.286

[0.04]**

Cost to start a business

-0.069 [0.01]***

-0.064

[0.01]***

Governance index (Kauffman, et al.)

1.204 [0.07]*

1.331 [0.08]*

Constant -8.930 [0.00]***

-0.176 [0.95]

-2.215 [0.41]

-2.212 [0.22]

6.062 [0.02]**

6.030 [0.06]*

Observations R-squared

80 0.26

64 0.25

82 0.28

78 0.23

62 0.2

80 0.24

Multivariate Test

Additional Information IFC Entrepreneurship Data Base Web Page: http://www.ifc.org/ifcext/sme.nsf/Content/Entrepreneurship+Database

•  Viewpoint: “Entrepreneurship and firm formation across countries”

•  Research paper: “Entrepreneurship: New Data on Business Creation and How to Promote It”

•  Data Base

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