Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 959: Small Business Activity Does not Measure Entrepreneurship

Magnus Henrekson () and Tino Sanandaji ()
Additional contact information
Magnus Henrekson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Tino Sanandaji: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: Entrepreneurship policy mainly aims to promote innovative “Schumpeterian” entrepreneurship. However, the rate of entrepreneurship is commonly proxied using quantity-based metrics, such as small business activity, the self-employment rate or the number of startups. We argue that those metrics give rise to misleading inferences regarding high-impact Schumpeterian entrepreneurship. In order to unambiguously identify high-impact entrepreneurs we focus on self-made billionaires (in USD) who appear in Forbes Magazine’s list and who became wealthy by founding new firms. We identify 996 such billionaire entrepreneurs in fifty countries in 1996–2010, a systematic cross-country study of billionaire entrepreneurs. The rate of billionaire entrepreneurs correlates negatively with self-employment, small business ownership and firm startup rates. Countries with higher income, higher trust, lower taxes, more venture capital investment and lower regulatory burdens have higher billionaire entrepreneurship rates but less self-employment. Despite its limitations, the number of billionaire entrepreneurs appears to be a plausible cross-country measure of Schumpeterian entrepreneurship.

Keywords: Entrepreneurship; Innovation; Institutions; Regulation; Self-employment

JEL-codes: L50; M13; O31; P14

27 pages, First version: March 6, 2013. Revised: January 26, 2014.

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