Entrepreneurship

Entrepreneurship among Nations

Starting new ventures creates jobs and generates more productivity and, hence, wealth. Because of the positive effects of entrepreneurship, both academics and policymakers have a keen interest in understanding the various factors that influence the decision of a person to become an entrepreneur. This has led to numerous studies of why some countries have more entrepreneurship than others.

The Global Entrepreneurship Monitor, headed by Paul Reynolds, has collected the best data on entrepreneurship among nations. There are myriad reasons why levels of entrepreneurial activity differ from country to country around the world, but at a national level several primary factors are the following:

• Sociocultural: A nation's culture, values, and norms may encourage (or discourage) people from starting new businesses because these shape attitudes. For example, a national culture that rewards risk-taking will likely have more entrepreneurs than one that is risk averse.
• Political/legal: The formal rules and regulations of a society can create incentives to engage in entrepreneurship. A system of law that is fair and impartial and protection of property rights are more likely to lead to entrepreneurship than their absence.
• Economic/financial: Nations also differ markedly in their ability to source capital to entrepreneurs. Nations that have banking institutions that extend loans on a rational estimation of a borrower's creditworthiness, as opposed to nepotism, are likely to have higher rates of entrepreneurship. Countries with well-developed equity markets and alternative sources of funding, such as venture capital and angel investors, are likewise going to have more [Page 489]entrepreneurs than countries lacking these capital mechanisms.
• Educational: Countries that have stronger systems of education, particularly at the tertiary level, probably have higher value-added entrepreneurship. They will have more new firms in segments like biotechnology and software relative to countries with weaker systems.

The previous list is by no means exhaustive or exclusive. Nations that have strong rule of law, for example, generally also have well-functioning capital markets. Social scientists will remain busy for the foreseeable future untangling how national-level variables impact both one another and entrepreneurship around the world.

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