Economic development and business creation

Abstract

Recent data suggest a continuous decline in the business creation rates across business sectors and regions in the USA. While there are a few factors (such as a decline in population and an increase in business consolidation) that seem to collectively explain some of the trend for at least some areas, the overall phenomenon is still not understood. This study contributes to this line of research by assessing the relationship between economic development and business creation rates in an international setting. This study uses an 8-year and 130 countries (unbalanced) panel dataset to analyze this relationship. It finds the relationship between economic development and business creation rates to be linear and negative suggesting that the USA is not an outlier, and that business creation rates decrease in other developed economies as well. Since previous studies suggested that a decrease in business formation rates will impact the economy negatively, policymakers need to take corrective actions such as subsidies for new businesses and taxes for established ones.

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Notes

  1. 1.

    A recent study found a significant positive correlation between self-employment, business creation and innovation for urban areas (Faggio and Silva 2014).

  2. 2.

    The study reports that former communist countries have levels of entrepreneurship about 5.5% lower than the rest.

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Acknowledgements

This paper has greatly benefitted from very useful comments and suggestions received from two anonymous reviewers. However, the author is solely responsible for all remaining errors and omissions.

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Correspondence to Mihai Nica.

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Nica, M. Economic development and business creation. Econ Change Restruct 54, 219–239 (2021). https://doi.org/10.1007/s10644-020-09274-9

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Keywords

  • Business creation
  • Entrepreneurship
  • Economic development
  • Panel data