Small business activity does not measure entrepreneurship

Area of Science:

• Economics
• Entrepreneurship Studies
• Innovation Policy

Background:

• Entrepreneurship policy often targets innovative Schumpeterian entrepreneurship.
• Existing metrics like small business activity or startup rates may not accurately reflect high-impact entrepreneurship.
• There is a need for reliable cross-country measures of Schumpeterian entrepreneurship.

Purpose of the Study:

• To evaluate the validity of quantity-based entrepreneurship metrics.
• To identify a more accurate proxy for high-impact Schumpeterian entrepreneurship.
• To analyze the determinants of billionaire entrepreneurship across countries.

Main Methods:

• Systematic cross-country study of 996 self-made billionaires from Forbes Magazine's list (1996-2010).
• Identification of entrepreneurs who founded new firms and achieved wealth independently.
• Correlation analysis between billionaire entrepreneurship rates and various socio-economic factors.

Main Results:

• Billionaire entrepreneurship rates negatively correlate with self-employment, small business ownership, and startup rates.
• Higher income, trust, venture capital, and lower taxes/regulation are associated with higher billionaire entrepreneurship.
• Countries with high rates of billionaire entrepreneurs show lower rates of self-employment.

Conclusions:

• Quantity-based entrepreneurship metrics can be misleading for assessing Schumpeterian entrepreneurship.
• Self-made billionaire entrepreneurs represent a plausible, albeit imperfect, cross-country measure of high-impact entrepreneurship.
• Policy implications suggest focusing on factors that foster innovation and wealth creation rather than just business numbers.