Entrepreneurship - the key to prosperity?

Following the G20 summit this weekend, the leaders of the world's largest economies issued a statement explaining how they intend to remake the world's economic architecture. On the very first page of the statement you'll run across the following:

Our work will be guided by a shared belief that market principles, open trade and investment regimes, and effectively regulated financial markets foster the dynamism, innovation, and entrepreneurship that are essential for economic growth, employment, and poverty reduction.

It might be tempting to treat this merely as empty rhetoric, but I think it's worthwhile to look at what the data actually shows about these relationships. The most recent data from the World Bank Group Entrepreneurship Survey - which covers 100 countries - indicates a very strong (and statistically significant) relationship between entrepreneurship and economic well-being. (Entrepreneurship is measured by the entry density rate of limited liability companies and economic well-being is measured by GDP per capita.)

 

Of course, the normal caveats apply in terms of assigning causality to correlations. Yet it seems quite plausible that the causality runs from entrepreneurship to high GDP per capita, and the collection of more longitudinal data - the Entrepreneurship Survey is now in its third year - should enable researchers to make more robust conclusions about causality.

In other words, we shouldn't be so quick to dismiss the G20's statement as empty rhetoric.

For more on entrepreneurship around the world, check out some of these resources:

• Leora Klapper's 2008 overview of the Entrepreneurship Survey
• The complete dataset, available in Excel format
• A brief note on New Data on Business Creation and How to Promote It
• The Business Planet map of entrepreneurship data.

Cross-posted on the PSD blog.