Entrepreneurship plays a crucial role in economic development. Understood as the activities of an individual or a group of individuals aimed at initiating an economic enterprise, entrepreneurship creates jobs, fosters innovation, improves productivity. However, disparities exist between the economies worldwide when it comes to entrepreneurship. Which economies have the highest rates of entrepreneurship? How have entrepreneurship rates evolved in recent years?
The World Bank’s Entrepreneurship Database provides some answers by measuring the level and dynamic of entrepreneurial activity across countries over time. Building on information collected directly from business registries and national statistics agencies, this database provides a comprehensive and comparable dataset in 180 economies. It is the only global database tracking formal entrepreneurship since 2006.
The Entrepreneurship Database looks at entrepreneurship in the formal sector and measures new business entry density—the number of new registered limited liability companies (LLCs) per calendar year, per 1,000 working-age adults. An analysis of data collected from 2006 to 2022 allows us to understand the dynamics of private enterprises around the world and helps to measure the impact of regulatory, political, and institutional changes on new business registrations.
Here are the five key takeaways from the seventh edition of the World Bank’s Entrepreneurship Database:
1. Higher levels of entrepreneurial activity remain in high income economies.
Source: Entrepreneurship Database
Wide disparities exist in entrepreneurial activity, measured by average rates of new business density, across income groups. Higher income countries tend to have higher levels of new business registrations (Figure 1). In 2022, high income economies had about 7.3 new companies per 1,000 adults. In contrast, low-income countries showed a substantially lower prevalence rate of entrepreneurial activity relative to all other income groups. Low-income economies had only 0.4 new companies per 1,000 adults. This reflects the huge potential that exists for low-income economies to increase formal entrepreneurship activities and associated new business density.
2. Entrepreneurial activity evolved in different ways across income groups.
Source: Entrepreneurship Database
Overall, between 2006 and 2022, high income economies had the biggest increase in entry density, with a 1.6 percentage point increase, followed by middle income economies (Figure 2). After being severely impacted by the 2008/09 financial crisis in high and upper middle-income economies, average new business density rates continued to grow steadily until 2020. In 2020, Covid-19 slowed entrepreneurial activity in high and middle economies but in 2021 most economies experienced a spike in business registrations.
For low-income economies, the average new business density had been very low and far below those of other income groups since 2006. New business density has only timidly progressed in low-income economies and went from 0.2 new LLCs per 1,000 adults in 2006 to 0.4 new LLCs per 1,000 adults in 2022.
3. Economies experienced a rebound in new business registrations in 2021.
Source: Entrepreneurship Database
The year 2021 experienced a surge in the formation of new companies, whereby 92% of economies witnessed an increase in the number of new business registrations. This substantial increase is a stark contrast from the previous year, where only 40% of economies experienced a rise in new business establishments. This 40%, which occurred in 2020 during the Covid-19 pandemic, represents the second lowest level of new business formations after the decrease experienced during the 2009 financial crisis.
4. Estonia has the highest rate of new businesses in the world.
Source: Entrepreneurship Database
In Estonia, the new business density rate increased from 13.2 new limited liability companies per 1,000 adults in 2006 to 24.3 new limited liability companies per 1,000 adults in 2022 – being the highest level in the world. Estonia implemented constant reforms to facilitate business entry and support local and foreign entrepreneurship.
Among several reforms, Estonia introduced e-Residency into its legislation in 2014. This mechanism enables foreigners to access certain services in Estonia, including starting and operating a business online. Since its creation in 2014, the e-Residency program contributed to the creation of new companies owned by foreigners in the country. Between 2019 and 2022, about 20% of Estonian companies registered annually were created by e-residents.
5. Cabo Verde experienced the biggest increase in new businesses over time.
Source: Entrepreneurship Database
In Cabo Verde, located 500 km off the west coast of Africa, the new business density rate increased from 1.5 new limited liability companies per 1,000 adults in 2008 to 18.5 new limited liability companies per 1,000 adults in 2022 – being the biggest increase over time. The increase started in 2015 after Cabo Verde started implementing reforms to facilitate business entry for local entrepreneurs.
In 2014, Cabo Verde adopted the Regime Especial das Micro e Pequenas Empresas, under which the incorporation of a new limited liability company is free of charge. It also introduced a fast-track process for company registration in one day and it simplified municipal licenses. In 2019, Cabo Verde also adopted a new Commercial Code, simplified the business registration process at the one-stop shop for business start-ups, and introduced electronic minute books for new companies.
For more information on the 180 economies covered by the Entrepreneurship Database, please consult the website: https://www.worldbank.org/en/programs/entrepreneurship.
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