New firm registration in 2011 grew faster across 60 percent of the World’s economies than in the year before
Large reforms that reduced the time, cost, days and number of steps required to start a business have a large impact on new firm registrations
New data collected from business registries in 130 economies
October23, 2012 –Most economies are on their way to recover from the sharp drops in new firm registration triggered by the 2008 global financial crisis, a trend that may have been bolstered by government reforms, according to a new World Bank database released today.
In 2011, more than 60 percent of the world’s economies saw a faster pace of new firm registration than the year before. That is almost double the 2009 rate of 34 percent, though it still lags behind the 2007 rate of 75 percent, according to the World Bank Group Entrepreneurship Database, which is updated every two years.
Large reforms make a huge difference. In particular, reforms that significantly reduce the time, cost, days and number of steps required to start a business – generally over a 50% reduction in any given measure recorded by the World Bank Group’s Doing Business series – have a real, sustainable impact on new firm registration, according to an analysis by economists in the World Bank’s Development Research Group.
For example, Rwanda registered 4,500 new firms in 2011, up from 1,136 in 2008. This was in the wake of 2009 reforms that, among other things, eliminated six steps to register a business and shortened the process time from 14 to three days. Similarly, Morocco reduced the minimum capital requirement for incorporation in 2006—from 700 percent of gross national income (GNI) per capita to 67 percent. New firm registrations increased from 17,523 in 2006 to 24,676 in 2007, and Morocco has sustained the momentum of over 20,000 firm registrations per year.
“The new data offer policy makers and researchers new insights into global trends in formal entrepreneurship, which will lead to more evidence-based decisions,” says Kaushik Basu, Chief Economist and Senior Vice President for Development Economics the World Bank.
The Entrepreneurship Database is based on the first, and only, global survey of formal entrepreneurship that can be compared across countries and over time. Data on new firm registration are collected directly from business registries in 130 economies.
The rates of new firm registration differ significantly from country to country, reflecting variations in their performance of Doing Business indicators. For every 1,000 working-age adults, high-income economies register an average of more than four new limited liability companies a year, compared with one for developing countries.
"Countries improve the most when the reforms are large and broad, covering multiple indicators. That is especially true in economies with a relatively weaker business environment," says Leora Klapper, a lead economist at the World Bank’s Development Research Group.
“If policy makers are willing to make significant reforms and truly make it easier for entrepreneurs to formally register their business, then there is real potential to significantly increase new firm registration,” says Klapper, who co-authored the research paper with Inessa Love, now an associate professor at the University of Hawaii.
The Enterprise Database is funded by the Ewing Marion Kauffman Foundation and the World Bank Group. The 2012 Entrepreneurship Database builds on earlier editions of the data. This update, marks improved methodology and also includes data from 23 more low-income economies, including Bangladesh, Honduras, Iraq, and Sierra Leone.