Messin’ With Entrepreneurship Data

4 September 2008 at 1:44 pm Peter G. Klein Leave a comment

| Peter Klein |

OK, it’s not as much fun as Messin’ with Sasquatch. But what happens if you mess with the two leading sources of global entrepreneurship data, the Global Entrepreneurship Monitor, which tracks startups, and the World Bank Entrepreneurship Survey dataset, which measures formal business registrations? One could explain the differences in terms of coverage, the sensitivity of the measurement instrument, and various forms of error. Or, like Zoltan Acs, Sameeksha Desai, and Leora Klapper, use the differences to measure the stages of entrepreneurial development. For commensurate data, that is, the ratio of registrations to startups provides information on the rate at which entrepreneurial ideas are transformed into feasible ventures. The abstract, from SSRN:

This paper compares two datasets designed to measure entrepreneurship. The Global Entrepreneurship Monitor dataset captures early-stage entrepreneurial activity; the World Bank Group Entrepreneurship Survey dataset captures formal business registration. There are a number of important differences when the data are compared. First, GEM data tend to report significantly greater levels of early-stage entrepreneurship in developing economies than do the World Bank data. The World Bank data tend to be greater than GEM data for developed countries. Second, the magnitude of the difference between the datasets across countries is related to the local institutional and environmental conditions for entrepreneurs, after controlling for levels of economic development. A possible explanation for this is that the World Bank data measure rates of entry in the formal economy, whereas GEM data are reflective of entrepreneurial intent and capture informality of entrepreneurship. This is particularly true for developing countries. Therefore, this discrepancy can be interpreted as the spread between individuals who could potentially operate businesses in the formal sector – and those that actually do so: In other words, GEM data may represent the potential supply of entrepreneurs, whereas the World Bank data may represent the actual rate of entrepreneurship. The findings suggest that entrepreneurs in developed countries have greater ease and incentives to incorporate, both for the benefits of greater access to formal financing and labor contracts, as well as for tax and other purposes not directly related to business activities.