Is entrepreneurship the key to prosperity?

By Ryan Hahn

After the November G20 Summit, leaders of the world's largest economies issued a statement explaining how they intend to remake the world's economic architecture. Here's what's on the first page of the statement:

Our work will be guided by a shared belief that market principles, open trade and investment regimes, and effectively regulated financial markets foster the dynamism, innovation, and entrepreneurship that are essential for economic growth, employment, and poverty reduction.

It might be tempting to treat this only as empty rhetoric, but it could be worthwhile to look at what the data actually shows about these relationships. The most recent data from the World Bank Group Entrepreneurship Survey - which covers 100 countries - indicates a very strong relationship between entre-preneurship and economic well-being. (Entrepreneurship is measured by the entry density rate of limited liability companies and economic well-being is measured by GDP per capita.)

Of course, the normal caveats apply in terms of assigning causality to correlations. Yet it seems quite plausible that the causality runs from entrepreneurship to high GDP per capita, and the collection of more longitudinal data - the Entrepreneurship Survey is now in its third year - should enable researchers to make more robust conclusions about causality.

In other words, we shouldn't be so quick to dismiss the G20's statement as empty rhetoric.

For more on entrepreneurship around the world, here are some recommended resources:

• Leora Klapper's 2008 overview of the Entrepreneurship Survey
• The complete dataset, available in Excel format
• A brief note on New Data on Business Creation and How to Promote It
• The Business Planet map of entrepreneurship data.

Originally posted on the Doing Business blog and the Private Sector Development Blog (PSD Blog) gathers together news, resources and ideas about the role of private enterprise in fighting poverty. The blog is informal and represents the quirks and opinions of the bloggers, not the World Bank Group.

Ryan Hahn is a consultant for the joint World Bank-IFC Private Sector Development Vice-Presidency