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Global Entrepreneurship Index 2015

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Zoltn J. cs

Professorial Fellow London School of Economics and Political Science, UK University Professor in the School of Public Policy at George Mason University, USA

Lszl Szerb

University Professor and Director of the Department of Business and Management Studies in the Faculty of Business and Economics at the University of Pecs, Hungary

Erkko Autio

Chair in Technology Venturing and Entrepreneurship and Director of the Doctoral Programme at Imperial College London Business School, UK

The Global Entrepreneurship and Development Institute, Washington, D.C., USA

Table of Contents

About The Global Entrepreneurship and Development Institute........................................................................... vii

Preface: A Compass for Strengthening Entrepreneurial Ecosystems ................................................................... ix Global Entrepreneurship in 2015 ............................................................................................................................... xi

Chapter 1: Introduction ............................................................................................................................................... 1 Chapter 2: The Global Entrepreneurship Index ....................................................................................................... 13

Introduction ............................................................................................................................................................. 13

The S-Shaped Curve ............................................................................................................................................... 13

The 14 Pillars of Entrepreneurship .......................................................................................................................... 15

Entrepreneurial Attitude Pillars ................................................................................................................................ 15

Entrepreneurial Ability Pillars .................................................................................................................................. 16

Entrepreneurial Aspiration Pillars ............................................................................................................................ 17

The Global Entrepreneurship Index, 2015 Rankings ............................................................................................... 18

The Ranking of the 3As ........................................................................................................................................... 21

Summary and Conclusion ....................................................................................................................................... 27

Chapter 3: Performance by Country and Country Group ....................................................................................... 31 Sub-Saharan Africa ................................................................................................................................................. 32

Middle East and North Africa (MENA) ..................................................................................................................... 35

Asia-Pacific ............................................................................................................................................................. 38

Europe ..................................................................................................................................................................... 42

North America ......................................................................................................................................................... 46

South and Central America and the Caribbean ....................................................................................................... 49

Chapter 4: Enhancing Entrepreneurship Ecosystems. A Systems of Entrepreneurship Approach to Entrepreneurship Policy ............................................................................................................................................ 55

Introduction ............................................................................................................................................................. 55

What Are Systems of Entrepreneurship? ................................................................................................................ 56

Systems of Entrepreneurship and Entrepreneurship Ecosystem Policy .................................................................. 58

Using the GEI Approach for Entrepreneurship Ecosystem Policy Analysis ............................................................. 60

Using the GEI Method for Entrepreneurship Ecosystem Policy Design .................................................................. 62

Chapter 5: Methodology and Data Description ....................................................................................................... 67

Introduction ............................................................................................................................................................. 67

The Index Structure ................................................................................................................................................. 67

The Individual Variables and Dataset ...................................................................................................................... 68

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Summary ................................................................................................................................................................. 80

Appendix A Pillar distributions ........................................................................................................................... 81 Appendix B The Global Entrepreneurship Sub-Index Rank of Countries in alphabetical order, 2015 ......... 89

Appendix C Entrepreneurial Attitudes Sub-Index and Pillar Values of Countries in alphabetical order, 2015 ........................................................................................................................................................... 93

Appendix D Entrepreneurial Abilities Sub-Index and Pillar Values of Countries in alphabetical order, 2015 . ........................................................................................................................................................... 97

Appendix E Entrepreneurial Aspirations Sub-Index and Pillar Values of Countries in alphabetical order, 2015 ......................................................................................................................................................... 101

Country Pages ..........................................................................................................................................................107

Tables, Figures, and Highlight Boxes

Figure 1.1: The Structure of the Global Entrepreneurship Index .................................................................................... 3 Table 1.1: The Ten Most Entrepreneurial Countries in 2015 ......................................................................................... 4 Table 1.2: Points and Ranks of the Countries in the 2015 GEI ....................................................................................Table 1.3: The Ten Biggest Gains in GEI Score from 2014 to 2015 .............................................................................. 6 Table 1.4: The Ten Biggest Declines in GEI Score between 2014 and 2015 ................................................................ 6 Table 1.5: The Top Performing Country in Each Region ............................................................................................... 7 Map: The 2015 GEI Results ........................................................................................................................................... 8 Figure 2.1: The S-Curve of Entrepreneurship .............................................................................................................. 14 Table 2.1: The Global Entrepreneurship Index Rank of all Countries, 2015 ................................................................ 19 Figure 2.2: The Three Sub-Indexes in Terms of Per Capita Real GDP (2006-2013, all data included) ....................... 22 Table 2.2: The Global Entrepreneurship Index and Sub-Index Ranks of the First 25 Countries, 2015 ........................ 23 Table 2.3: Entrepreneurial Attitudes Sub-Index and Pillar Values for the First 25 Countries, 2015* ............................ 24 Table 2.4: Entrepreneurial Abilities Sub-Index and Pillar Values for the First 25 Countries, 2015 ............................... 25 Table 2.5: Entrepreneurial Aspirations Sub-Index and Pillar Values for the First 25 Countries, 2015* ........................ 26 Table 3.1: Country Groups Analyzed in This Chapter .................................................................................................. 31 Table 3.2: GEI Ranking of the Sub-Saharan African Countries ................................................................................... 33 Figure 3.1: Pillar Level Comparison of Africa and the World ........................................................................................ 34 Figure 3.2: Pillar-Level Comparison of South Africa, Nigeria, and Uganda.................................................................. 35 Table 3.3: GEI Ranking of the Middle East and North African Countries ..................................................................... 36 Figure 3.3: Pillar-Level Comparison of MENA and the World ...................................................................................... 37

Figure 3.4: Pillar-Level Comparison of the United Arab Emirates, Tunisia, and Egypt ................................................ 38 Table 3.4: GEI Ranking of the Asia-Pacific Countries .................................................................................................. 38 Figure 3.5: Pillar-Level Comparison of Asia and the World .......................................................................................... 39 Figure 3.6: Pillar-Level Comparison of Australia, China, and Bangladesh ................................................................... 41 Table 3.5: GEI Ranking of the European Countries ..................................................................................................... 42 Figure 3.7: Pillar-Level Comparison of Europe and the World ..................................................................................... 44 Figure 3.8: Pillar-Level Comparison of the United Kingdom, Greece, and Russia ....................................................... 45 Table 3.6: GEI Ranking of the North American Countries ............................................................................................ 46 Figure 3.9: Pillar-Level Comparison of North America and the World .......................................................................... 47 Figure 3.10: Pillar-Level Comparison of the United States, Canada, and Mexico ........................................................ 48 Table 3.7: GEI Ranking of the South and Central American and Caribbean Countries ............................................... 49 Figure 3.11: Pillar-Level Comparison of the Latin American Region and the World .................................................... 50 Figure 3.12: Pillar-Level Comparison of Chile, Brazil, and Suriname........................................................................... 51 Figure 2.1: Dynamic of National Systems of Entrepreneurship .................................................................................... 59 Figure 2.2: Entrepreneurship Ecosystem Profiles of the U.S., Japan, and India .......................................................... 60 Table 2.1: Ecosystem Optimization Analysis for UK Home Nations ............................................................................ 62 Table 5.1: The Description of the Individual Variables Used in the GEI ....................................................................... 68 Table 5.2: The Distribution of the Sample by Countries and the Calculation of the Individual Variables ..................... 69 Table 5.3: The Description and Source of the Institutional Variables Used in the GEI ................................................ 72 Table 5.4: The Correlation Matrix between the Original Indicators (2006-2013 dataset) ............................................. 78 Table 5.5: The Correlation Matrix between the Indicators, Sub-Indexes and the GEI Super-Index after Normalizing and Applying the PFB Method (2006-2012 dataset) .................................................................................................... 79

Acknowledgements:

We would like to thank Ainsley Lloyd for producing the 2015 Global Entrepreneurship Index. She managed the entire production process from start to finish, including the country tables, the artwork, the layout, editing and proofreading.

We would like to thank Jonathan Ortmans and Global Entrepreneurship Network for their support and collaboration on the production and dissemination of the 2015 GEI.

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About The Global Entrepreneurship and Development Institute

Zoltn J. cs Founder and President, the GEDI Institute

The Global Entrepreneurship and Development Institute (GEDI Institute) is a non-profit organisation that advances research on links between entrepreneurship, economic development and prosperity. The institute was founded by world-leading entrepreneurship scholars from the George Mason University, University of Pcs and Imperial College London. The flagship project of the Institute is the GEI Index, a breakthrough advance in measuring the quality and dynamics of entrepreneurship ecosystems at a national and regional level. The Global Entrepreneurship Index methodology, upon which the data in this report is based, has been validated in rigorous academic peer reviews and has been widely reported in media, including in The Economist, The Wall Street Journal, Financial Times and Forbes.

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Preface: A Compass for Strengthening Entrepreneurial Ecosystems

Jonathan Ortmans President, Global Entrepreneurship Network

The globalization of entrepreneurship is producing an explosion of programs, startup communities, policy interventions and investments across the world. Now, ideas, capital and talent speed across borders finding founder teams to create new ventures that fuel economic growth and stability. These are exciting times when a new generation of risk takers are leveling the playing field and creating new opportunities for more people.

These developments are manifested in the various activities of the Global Entrepreneurship Network (GEN) a community that has arisen from Global Entrepreneurship Week, the annual celebration of entrepreneurs now in more than 150 countries. Started as a grassroots movement anchored in established economies with stable political systems, GEN has evolved and matured into a year-round platform that operates in all types of economies and cultures.

A careful look at this entrepreneurial renaissance reveals, however, that new challenges have emerged. In particular, data collection and analysis has not been able to keep pace with the rapid growth of programs and other interventions designed to increase rates of new firm formation. There exists a paucity of data, not just around what works and what does not in supporting new entrepreneurs, but about the overall entrepreneurial performance of our societies. In short, we do not know where and how our efforts are succeeding and failing.

Countries seeking to add entrepreneurial resilience to their economies benchmark their regulatory frameworks and ecosystem performance against other economies. At the same time, academics and economists still debate what to measure, which data is credible and which methodologies should be considered reliable. This has given rise to a new dialogue between startup community leaders and government leaders seeking more sophisticated tools, programs and research to help them most efficiently direct their attention and funds to areas that have the greatest impact on future economic growth.

Such dialogue is certainly a key part of the experimentation formula that unearths solutions in both the startup and policy worlds and as a broad-based movement of leaders and feeders to the entrepreneurial ecosystem, GEN is actively working to build trust between these players. Coupled with solid data, such dialogue could go much further in helping us all fine-tune our efforts and in a much more efficient way. GEN has therefore partnered with the Global Entrepreneurship and Development Institute to present the Global Entrepreneurship Index (GEI).

The Global Entrepreneurship Index, while by no means the definitive answer, seeks to provide more than just a countrys relative global ranking. The Index sheds light on the efficiency of national startup ecosystems through analysis of 34 essential individual and institutional variables. It attempts to reveal the bottlenecks that erode hard-won competitive advantages for startup ecosystems and provide rankings by region to provide policymakers regulatory environment comparisons with surrounding economies.

The pulse-taking in this report will be updated annually, with a fresh assessment released each November during Global Entrepreneurship Week. Due in part to the efforts of those leading GEW and of the myth-busting work of the knowledge houses that today form the Global Entrepreneurship Research Network, GEN hopes to help governments around the world improve upon and expand their understanding of new and young firm formation. As a platform for all these concerted efforts, GEN is committed to feed that interest and push the frontier forward in terms of academic rigor. The Global Entrepreneurship Index is a firm step in that direction.

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Chapter 1: Introduction The world economy is facing important medium- and long-term challenges. Whereas rich countries will be challenged to increase their economic productivity to sustain current standards of living as their populations rapidly age, low-income economies will need to integrate more than two billion young adults into the world economy by 2050. Economic initiatives by enterprising individuals are likely to be key in addressing the challenges of long-term productivity in rich countries, whereas poor countries will continue to struggle to integrate their rapidly growing populations into their economies.

These economic challenges occur unevenly in different regions of the globe. In the developed world, the population of the 15-59 age group, the core of the labor force, is expected to lose almost 15 percent between 2010 and 2040. However, the number of people in that age group in the developing world is still rising rapidly and is expected to increase by 50 percent by 2050, excluding China whose labor force has already stopped growing). In sub-Saharan Africa alone, the population aged 15-59 will increase from 455 million today to over one billion by 2050. Thus, the lions share of the growth in the world labor force in the coming decades will occur in the less developed countries (again excluding China), where the number of 15- to 59-year-olds will increase by 1.3 billion in the next 40 years.

Although global population growth is slowing in some regions, the 1980s and 1990s were years of high fertility in most countries of the world, and the exceptionally large cohorts born during those decades are now entering the labor market. Thus we are in the midst of a labor force boom not likely to end for another 30 or 40 years. Clearly, what the world economy most needs now is jobs; the main questions are, how many will we need to create, and how fast.

How can more than one billion jobs be created in the developing world within this timeframe, especially in the least developed countries, where poverty and massive unemployment are already the dominant facts of economic life? The approaches used by the development community in the last 50 years have generally not been effective. Simply making capital more readily available in the form of grants and loans has created debt and squandered resources. The idea that, if rich countries build roads, dams, and power stations, jobs will follow, has proved misguided. More recent approaches, such as microcredit, improving the rule of law, and supporting smallholder property registration, all efforts to jumpstart the founding of small businesses, have helped in many localities, but they have yet to produce the increase in large-scale, labor-intensive industries that will create jobs where they are most needed.

The one solution that can provide jobs on that scale lies in a combination of innovation and entrepreneurship. Research on economic growth over the last 30 years has strongly emphasized that rapid job creation comes from rapidly growing companies. Therefore, the worlds developing countries will be able to provide the jobs their rapidly increasing populations require only by encouraging the founding of companies that grow rapidly by providing widely desired new products or services. Such companies are usually created by exploiting new market niches and offering novel products, services, or processes that have few competitors or substitutes. The combination of novel products, few immediate competitors, and high demand created by new markets can sustain high levels of profitability, which will provide the capital and the incentives for the rapid expansion of production and employment.

Some economists believe that developing economies should exploit their comparative advantage of using low-cost labor to produce primary products, while advanced economies provide the technical innovation and entrepreneurship that create new industries. However, this approach has not, and will not, be sufficient to meet the employment challenges facing the developing world. Competing globally by providing low-cost

labor was effective when the rich countries seemed able to absorb an unending stream of cheap imports, but that is no longer the case; in fact, only a few nations actually followed this path.

Moreover, such a strategy is unlikely to be effective when a billion new workers are looking for employment while the economies of the developed worldaging and paying down their accumulated debtsare shifting from rapid to tepid growth. Relying on the production of primary products condemns countries to endless cycles of commodity boom and bust, as countries from Russia to Zambia have discovered. To succeed in the rapidly growing markets of the emerging nations will require that new products be developed for these markets that are cheaper, easier to maintain, and vastly more efficient. Only innovation and the creation of new enterprises are likely to offer a long-term solution to the economic needs of developing countries.

How can we encourage the spread of innovation and entrepreneurship in the developing world that will be the key to future global prosperity? The answer is entrepreneurship. More than one hundred years ago, in the Theory of Economic Development, Joseph Schumpeter pointed out that entrepreneurs are important for development. Today we can expand on that and say they are the key drivers of economic development. While Schumpeter was describing countries that had similar levels of development, in todays globalized world we are dealing with countries that have very different levels of development. Furthermore, the importance that institutions such as the rule of law and education play in economic development has become increasingly clear to economists and policymakers alike. We now must understand clearly why institutions are important for development and what roles they play. We already know that they are important because they create the incentive structure that determines the behavior of entrepreneurs. Without these positive incentives, entrepreneurs will not engage in productive activities.

The Global Entrepreneurship Index (GEI) provides a detailed look at the entrepreneurial ecosystem of nations by combining individual data with institutional components. We have developed a system that links institutions and agents through a National Entrepreneurial System (ecosystem) in which each biotic and abiotic component is reinforced by the other at the country level. This composite index of both individual- and country-level institutional data gives policymakers a tool for understanding the entrepreneurial strengths and weaknesses of their countries economies, thereby enabling them to implement policies that foster productive entrepreneurship. GEI is designed to help governments harness the power of entrepreneurship to address these types of challenges.

The GEI is a joint project with the Global Entrepreneurship Network (GEN), the communities, organizations and leaders that have been inspired and brought together from 150 nations to build healthier entrepreneurship ecosystems as a result of Global Entrepreneurship Week. The methodology used for the GEI is significantly different from previous efforts to organize this data done by the Global Entrepreneurship Development Institute. In addition, since the number of countries in the Index has grown, we are now able to provide regional information. For example, we can focus on Africa, whose needs are different from those of Western Europe or the Middle East. However, as a result, previous results cannot be directly compared to the 2015 data given (a) the changes in the variables, (b) the alteration of the pillars, and (c) the adjustment of the benchmark values.

The purpose of this index is to measure the quality and the scale of the entrepreneurial process in 130 countries around the world. The GEI provides a rich understanding of entrepreneurship and a more precise ability to measure it. It also captures the contextual features of entrepreneurship by measuring entrepreneurial attitudes, abilities, and aspirations. These data, and the contribution they make to the process of creating businesses, are supported by three decades of research into entrepreneurship across a host of countries.

Distinct from both output-based entrepreneurship indexes (i.e., new firm counts) and process-based indexes (i.e., comparisons of policies and regulations), the GEI is designed to profile national systems of entrepreneurship. The GEI is not a simple count of, say, new firm registrations, nor is it an exercise in policy benchmarking. The Index also does not focus exclusively on high-growth entrepreneurship; it also considers the characteristics of entrepreneurship that enhance productivity: innovation, market expansion, being growth oriented, and having an international outlook.

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Moreover, because entrepreneurship can have both economic and social consequences for the individual, the GEI captures the dynamic, institutionally embedded interactions between the individual-level attitudes, abilities, and aspirations that drive productive entrepreneurship.

Finally, the GEI recognizes that entrepreneurship can mean very different things in different economic and institutional contexts. A local horticultural venture, for example, would have different economic consequences for the Kenyan economy than a social media startup in Silicon Valley. Recognizing that entrepreneurship has a different impact in different contexts, the GEI combines individual-level data with data that describe national institutions, as well as economic and demographic structures, to provide an institutionally embedded view of the drivers of productive entrepreneurship. Figure 1.1 shows the structure of the GEI sub-indexes, pillars, and variables.

Figure 1.1: The Structure of the Global Entrepreneurship Index

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Note: The GEI is a super index made up of three sub-indexes, each of which is composed of several pillars. Each pillar consists of an institutional variable (denoted in bold) and an individual variable (denoted in bold italic).

If the GEI were a weather report, stormy weather would indicate a higher level of unproductive entrepreneurship, such as rent-seeking and contraband activities that interfere with and undermine a countrys economic growth and prosperity. Todays rising barometric pressure means better conditions lie ahead as the world transitions from a managed economy to a more entrepreneurial society.

So what does the GEI tell us? First, as we celebrate Global Entrepreneurship Week, which sparks thousands of entrepreneurial activities all over the world, we sometimes wonder how entrepreneurship is actually faring. Are we making real progress? While we have some very good tools to predict the weather, no such simple tool has existed in the world of entrepreneurship. Until now. This is important, because as we look toward the world of 2050 we see storm clouds on the horizon: an exploding population, global warming, increasing urbanization that produces (poorly performing) larger and larger cities, and the lack of opportunity that will ultimately reduce the level of productive entrepreneurship.

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The GEI measures entrepreneurship across the world and gives it a number that enables us to understand if it is getting stronger or weaker from year to year. Twenty-five years ago, before the Berlin Wall fell, the world was experiencing a very low level of entrepreneurship. With the exception of some enterprising people in a few countries in the Westthe United States, Canada, the UK, and Australiaalmost no one was actively pursuing productive entrepreneurship. This was especially true in Brazil, Russia, India, and China, some of todays most rapidly developing economies. In comparison, the world today is operating at better than 50 percent of its productive entrepreneurship capacity, which has been rising slowly over the years.

How is the world economy currently faring? Are we sailing on stormy seas, or does the clear evening sky indicate a calm sail ahead? To help answer this, Table 1.1 presents the ten most entrepreneurial countries in the 2015 data for the GEI and compares them to the 2014 rankings. Note that the 2014 rankings have been recalculated with the most recent version of the GEI method (for details, see Chapter 5).

Table 1.1: The Ten Most Entrepreneurial Countries in 2015

Country GEI 2015 Rank 2015 GEI 2014 Rank 2014 United States 85.0 1 82.0 1 Canada 81.5 2 n.a. n.a. Australia 77.6 3 76.8 3 United Kingdom 72.7 4 69.9 5 Sweden 71.8 5 73.7 4 Denmark 71.4 6 78.2 2 Iceland 70.4 7 68.0 11 Taiwan 69.1 8 69.6 7 Switzerland 68.6 9 69.4 8 Singapore 68.1 10 66.4 14

The United States maintained its number-one position on the 2015 GEI. Moreover, its point value increased sharply, from 82 to 85. Thus the U.S. not only remains the most entrepreneurial country in the world, it also is increasing its lead. The four top countriesthe United States, Canada, Australia, the UKall had higher GEI point values in 2015 than in 2014. As a result, the gap between the U.S. at the top and the Scandinavian countries that follow has increased slightly. The difference between the U.S. and the strongest European nations, Sweden, Denmark, Switzerland, and Iceland is larger than in 2014. Singapore and Taiwan increased their level of productive entrepreneurship. Taiwan, with its historically high score of 69, is in eighth place, while Singapore ranks tenth, also making the GEI top ten for the first time. In sum, the top-performing entrepreneurial ecosystems in the world are the four largest English-speaking countries, followed by three Scandinavian nations and two Asian countries; Switzerland rounds out the top ten.

Table 1.2 looks at the whole world, with its listing of all 130 countries in the 2015 GEI ranking. The table shows countries in Africa, South America, Asia, and the Middle East. Many African countries were added to the 2015 list; Nigeria, the largest nation in Africa, ranks 84th, while Uganda and Bangladesh occupy the last two places. The United Arab Emirates (UAE), which continues to lead the Middle East, is clustered with Chile, Estonia, and Israel. The relatively low rankings of India and, surprisingly, China are explained by their large rural and agricultural sectors, which pull down their rankings.


Rank Country GEI Rank Country GEI Rank Country GEI 1 United States 85.0 44 Bulgaria 42.7 87 Nicaragua 28.4 2 Canada 81.5 45 Hungary 42.7 88 Kazakhstan 28.4 3 Australia 77.6 46 Cyprus 42.5 89 Trinidad &

Tobago 28.4

4 United Kingdom 72.7 47 Greece 42.0 90 Ecuador 28.2 5 Sweden 71.8 48 Uruguay 41.4 91 Egypt 28.1 6 Denmark 71.4 49 Italy 41.3 92 Bolivia 28.0 7 Iceland 70.4 50 Lebanon 40.7 93 Gabon 27.7 8 Taiwan 69.1 51 Croatia 40.6 94 Iran 27.7 9 Switzerland 68.6 52 South Africa 40.0 95 Philippines 27.7

10 Singapore 68.1 53 Malaysia 40.0 96 Senegal 27.3 11 Germany 67.4 54 Montenegro 39.1 97 Jamaica 27.2 12 France 67.3 55 Costa Rica 37.7 98 Cambodia 26.3 13 Netherlands 66.5 56 Argentina 37.2 99 Rwanda 26.2 14 Finland 65.7 57 Moldova 37.2 100 Brazil 25.8 15 Norway 65.6 58 Macedonia 37.1 101 Gambia. The 25.6 16 Belgium 65.5 59 Barbados 37.1 102 Benin 25.6 17 Ireland 65.3 60 Brunei

Darussalam 36.9 103 Liberia 25.5

18 Austria 64.9 61 China 36.4 104 India 25.3 19 Chile 63.2 62 Paraguay 36.0 105 Ghana 24.8 20 United Arab

Emirates 61.6 63 Tunisia 35.5 106 Mozambique 24.3

21 Estonia 60.2 64 Ukraine 33.6 107 Cte dIvoire 24.1 22 Israel 59.9 65 Jordan 33.3 108 Tanzania 23.6 23 Luxembourg 57.2 66 Botswana 33.0 109 Myanmar 23.1 24 Qatar 56.2 67 Panama 32.2 110 Zambia 23.0 25 Turkey 54.6 68 Thailand 32.1 111 Angola 22.7 26 Lithuania 54.6 69 Namibia 31.9 112 Venezuela 22.6 27 Latvia 54.5 70 Russia 31.7 113 Mali 22.5 28 Korea 54.1 71 Sri Lanka 31.1 114 Burkina Faso 22.1 29 Slovenia 53.1 72 Lao PDR 31.1 115 Cameroon 22.0 30 Portugal 50.8 73 Libya 31.0 116 Madagascar 22.0 31 Saudi Arabia 49.6 74 Peru 30.9 117 Sierra Leone 21.6 32 Spain 49.6 75 Mexico 30.7 118 Swaziland 21.4 33 Japan 49.5 76 Albania 30.6 119 Mauritania 21.1 34 Puerto Rico 48.9 77 Dominican

Republic 30.6 120 Indonesia 21.0

35 Czech Republic 48.9 78 Serbia 30.6 121 Suriname 20.7 36 Colombia 47.9 79 Algeria 30.2 122 Guatemala 20.3 37 Kuwait 47.7 80 Honduras 29.8 123 Pakistan 20.1 38 Poland 47.4 81 El Salvador 29.6 124 Burundi 18.4 39 Oman 47.3 82 Morocco 29.4 125 Ethiopia 17.2 40 Hong Kong 45.9 83 Bosnia 28.9 126 Chad 16.6 41 Slovakia 45.4 84 Nigeria 28.9 127 Guyana 16.2

Table 1.2: Points and Ranks of the Countries in the 2015 GEI

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Rank Country GEI Rank Country GEI Rank Country GEI 42 Romania 45.3 85 Vietnam 28.8 128 Malawi 15.6 43 Bahrain 45.1 86 Kenya 28.5 129 Uganda 15.1

130 Bangladesh 14.4

Table 1.3 shows which countries made the greatest gains in GEI score from 2014 to 2015. The ten countries that made the greatest gains changed rankings from as many as ten places to as few as zero. Greece increased 4.5 points, followed by the UAE with 12.8 points. The biggest gainers are six European countries, three in the Middle East, and one in North America. Perhaps the big surprise is Iran, which moved up seven places.

Table 1.3: The Ten Biggest Gains in GEI Score from 2014 to 2015

Country Points 2014

Points 2015

Difference in Points

Difference in Ranking

United Arab Emirates** 48.8 61.6 12.8 -9 Latvia 48.1 54.5 6.4 -6 Lithuania 49.6 54.6 5.0 -2 Turkey 49.9 54.6 4.8 -2 Greece 37.5 42.0 4.5 -10 Portugal 46.4 50.8 4.4 -6 Czech Republic* 44.8 48.9 4.0 -4 Iran 24.3 27.7 3.4 -7 United States 82.0 85.0 3.0 0 Spain 46.7 49.6 2.9 -3

Legend: Included only those countries that have participated in the GEM survey and have not estimated individual data *both 2014 and 2015 individual data are from 2011**2014 individual data are from 2011

Table 1.4 compares the biggest losers in the 2014 GEI data to their place in the 2015 data. The losses were greater than the gains; for example, Puerto Rico and Indonesia both lost more than ten points. The decline was most notable in Denmark, Finland, and the Netherlands, which all lost ground. However, the European rankings are in general much improved, as the Euro crisis and the recession have eased. Mexico and Peru also lost ground.

Table 1.4: The Ten Biggest Declines in GEI Score between 2014 and 2015

Country Points 2014

Points 2015

Difference in Points

Difference in Ranking

Puerto Rico* 60.8 48.9 -11.9 12

Indonesia** 31.7 21.0 -10.7 20

Peru 39.2 30.9 -8.3 16

Denmark*** 78.2 71.4 -6.7 3

Mexico 36.3 30.7 -5.6 9

India**** 30.6 25.3 -5.3 13


Finland 69.3 65.7 -3.6 4

Malaysia 42.8 40.0 -2.8 6

Netherlands 69.3 66.5 -2.7 2

Angola 25.4 22.7 -2.7 3

Legend: Included only those countries that have participated in the GEM survey and have not estimated individual data *2013 individual data are from 2007**2013 individual data are from 2006 ***2014 individual data are from 2012 ****2014 individual data are from 2008

Table 1.5 shows the leading country in each of the six regions of the world: North America, Europe, Sub-Saharan Africa, Latin America, the Middle East North Africa and Asia- Pacific. The United States, Australia and the United Kingdom are the leaders in North America, Asia and Europe. In Sub-Saharan Africa, South Africa is the leader, followed by the UAE in the MENA region and Chile in Latin America.

Table 1.5: The Top Performing Country in Each Region

World Rank Country Region

Per capita GDP Attitudes Abilities Aspirations GEI

1 United States North America 45336 83.4 84.7 86.8 85.0

3 Australia Asia-Pacific 35608 77.9 81.3 73.5 77.6

4 United Kingdom Europe 32514 70.9 82.8 64.3 72.7

19 Chile South and Central America / Caribbean 15848 74.7 50.4 64.5 63.2

20 United Arab Emirates Middle East / North Africa 36267 55.8 57.6 71.4 61.6

52 South Africa Sub-Saharan Africa 9655 33.4 38.5 48.1 40.0

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Map: The 2015 GEI Results

Country GEI Score Country GEI Score Country GEI Score Country GEI Score Country GEI ScoreUnited States 85.0 Latvia 54.5 Malaysia 40.0 Algeria 30.2 Ghana 24.8Canada 81.5 Korea 54.1 Montenegro 39.1 Honduras 29.8 Mozambique 24.3Australia 77.6 Slovenia 53.1 Costa Rica 37.7 El Salvador 29.6 Cte dIvoire 24.1United Kingdo 72.7 Portugal 50.8 Argentina 37.2 Morocco 29.4 Tanzania 23.6Sweden 71.8 Saudi Arabia 49.6 Moldova 37.2 Bosnia 28.9 Myanmar 23.1Denmark 71.4 Spain 49.6 Macedonia 37.1 Nigeria 28.9 Zambia 23.0Iceland 70.4 Japan 49.5 Barbados 37.1 Vietnam 28.8 Angola 22.7Taiwan 69.1 Puerto Rico 48.9 Brunei Darus 36.9 Kenya 28.5 Venezuela 22.6Switzerland 68.6 Czech Repub 48.9 China 36.4 Nicaragua 28.4 Mali 22.5Singapore 68.1 Colombia 47.9 Paraguay 36.0 Kazakhstan 28.4 Burkina Faso 22.1Germany 67.4 Kuwait 47.7 Tunisia 35.5 Trinidad & To 28.4 Cameroon 22.0France 67.3 Poland 47.4 Ukraine 33.6 Ecuador 28.2 Madagascar 22.0Netherlands 66.5 Oman 47.3 Jordan 33.3 Egypt 28.1 Sierra Leone 21.6Finland 65.7 Hong Kong 45.9 Botswana 33.0 Bolivia 28.0 Swaziland 21.4Norway 65.6 Slovakia 45.4 Panama 32.2 Gabon 27.7 Mauritania 21.1Belgium 65.5 Romania 45.3 Thailand 32.1 Iran 27.7 Indonesia 21.0Ireland 65.3 Bahrain 45.1 Namibia 31.9 Philippines 27.7 Suriname 20.7Austria 64.9 Bulgaria 42.7 Russia 31.7 Senegal 27.3 Guatemala 20.3Chile 63.2 Hungary 42.7 Sri Lanka 31.1 Jamaica 27.2 Pakistan 20.1United Arab E 61.6 Cyprus 42.5 Lao PDR 31.1 Cambodia 26.3 Burundi 18.4Estonia 60.2 Greece 42.0 Libya 31.0 Rwanda 26.2 Ethiopia 17.2Israel 59.9 Uruguay 41.4 Peru 30.9 Brazil 25.8 Chad 16.6Luxembourg 57.2 Italy 41.3 Mexico 30.7 Gambia, The 25.6 Guyana 16.2Qatar 56.2 Lebanon 40.7 Albania 30.6 Benin 25.6 Malawi 15.6Turkey 54.6 Croatia 40.6 Dominican Re 30.6 Liberia 25.5 Uganda 15.1Lithuania 54.6 South Africa 40.0 Serbia 30.6 India 25.3 Bangladesh 14.4

GEI Score 2015


References

Acemoglu, D., & Robinson, J. (2001). Why nations fail: The origins of power, prosperity and poverty. New York: Crown Press.

Acs, Z. J., Szerb, L., & Autio, E. (2014). The global entrepreneurship and development index. Seattle: On Demand. Acs, Z. J., Szerb, L., & Autio, E. (2013). The global entrepreneurship and development index. Cheltenham, England:

Edward Elgar. Acs, Z. J., & Szerb, L. (2012). The global entrepreneurship and development index. Cheltenham, England: Edward

Elgar. Acs, Z. J., & Szerb, L. (2011). The global entrepreneurship and development index. Cheltenham, England: Edward

Elgar.

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Chapter 2: The Global Entrepreneurship Index Introduction

The modern temple of the entrepreneurial ecosystem is like many temples of the ancient world: both are held up by pillars. Todays economic ecosystem is supported by the pillars of development, which are held together by the cement of incentives created by institutions that influence the behavior of individuals. If a fully developed economy is to continue to flourish, these pillars need constant attention, continuous improvement, and careful maintenance, and they must be of similar height and strength.

In this chapter, we present the Global Entrepreneurship Index (GEI). We begin by discussing the S-shaped curve of entrepreneurship and the 14 pillars of entrepreneurship. We report country rankings and values in terms of GEI and these 14 pillars. We then present the three sub-indexes: attitudes toward entrepreneurship, entrepreneurial abilities, and entrepreneurial aspirations. Finally, we analyze and compare the different countries and country groups included in the GEI.

The S-Shaped Curve

Between 1945 and 1980, nearly one hundred colonies in Africa, Asia, and the Caribbean gained their independence and began creating a development strategy for their citizens.1 Sadly, many of those countries have experienced neither significant per capita growth nor economic development.2 Indeed, moderate to extreme poverty remains a significant concern for many developing countries.3

After failed attempts at development through import substitution (protecting domestic producers from the competition of imports) and programs to protect infant industries, as well as somewhat mixed results from export promotion strategies, developing countries are beginning to focus on improving their business environments and creating economic spaces that are conducive to private enterprise, both domestic and foreign. Indeed, in recent years, promoting entrepreneurship and the promulgation of small- and medium-sized enterprise policy have become important prescriptions for development.4

While focusing on entrepreneurship may seem a novel approach to development, it is consistent with and even complementary to older, more traditional development strategies. As developing economies have moved from centralized economies to market economies, enterprise and entrepreneurship have become increasingly important. As Woolridge writes, The emerging world, long a source of cheap labor, now rivals the rich countries for business innovation. Developing countries are becoming hotbeds of business innovation in much the same way as Japan did from the 1950s onwards.5

In his classic text, The Stages of Economic Growth, W. W. Rostow suggests that countries go through five stages of economic growth: (1) the traditional society, (2) the preconditions for take-off, (3) the take-off, (4) the drive to maturity, and (5) the age of high mass consumption.6 While these stages are an oversimplified way of looking at the development of modern economies, they do identify critical events. Michael Porter, who follows recent developments in the economics of innovation while conducting research on the current age of high mass consumption, provides a modern rendition of Rostows approach by identifying three stages of development: (1) a factor-driven stage, (2) an efficiency-driven stage, and (3) an innovation-driven stage.7

Entrepreneurship is an important mechanism that can promote economic development through employment, innovation, and welfare, but it does not appear like manna from heaven as a country moves through the stages of development. Rather, it is a process that plays a role in all stages of development and continues over many years. Economists have come to recognize the input-completing and gap-filling capacities of entrepreneurial activity in development8in other words, that someone has to create the technology for new products and create the markets

where people will buy them. Figure 2.1 shows the relationship between entrepreneurship and economic development.

The S-shaped curve shown in Figure 2.1 addresses two important questions about entrepreneurship. First, the S-shaped curve represents the source of poverty, whereas the intersection of the S-curve and the vertical axis suggests that, if individuals in a country are very poor, they may be in a poverty trap where the chances for growing their income or wealth are limited: tomorrows income may be less than todays, and any attempt to get out of this trap may further reduce future income, since at very low levels of income any investment in future income will result in a decline in current consumption that cannot be afforded. This helps to explain why the poor, and poor countries, are so little involved in entrepreneurship.9

The S-shaped curve also addresses how much productive entrepreneurship there is in countries at different stages of development and how rapidly it grows. Where the S-curve rises less steeply and then levels off it represents a situation where tomorrows income is greater than todays, so entrepreneurial activity is possible.10 How quickly countries modernize depends on the rise of this curve. The area above the curve is a valley of backwardness, which can only be eliminated when nations build better institutions and change their societys incentive structure, all of which requires good government and governance.11 As institutions become stronger, destructive and unproductive activities decline, and more entrepreneurial activity can focus on productive entrepreneurship, thus strengthening economic development.12

The second source of backwardness is unproductive entrepreneurship, where one group gives and another only takes. This form of rent-seeking is prevalent in many developed and developing countries. If rent-seeking by governments and other groups persists, entrepreneurs will remain reluctant to make the long-term investments of time and money that are needed to create productive, high-impact firms. If countries have extractive economies where only a few benefit at the expense of others, development will not take place.

Therefore, as activity shifts away from destructive and unproductive entrepreneurship, more productive forms of entrepreneurship can have a significant positive effect on the creation of social value. In todays interconnected world, we need to improve institutions and be able to measure this progress.

Figure 2.1: The S-Curve of Entrepreneurship

entre

pren

eurs

hiS

economic development

factor-driven stage

efficiency-driven stage

innovation-driven

stage


The 14 Pillars of Entrepreneurship

The pillars of entrepreneurship are many and complex. While a widely accepted definition of entrepreneurship is lacking, there is general agreement that the concept has numerous dimensions.13 We take this into account in creating our entrepreneurship index, as some businesses clearly have a larger impact on markets, create more new jobs, and grow faster and larger than others. We also take into account the fact that entrepreneurship plays a different role at different stages of development. Considering the various possibilities and limitations, we define entrepreneurship as the dynamic, institutionally embedded interaction between entrepreneurial attitudes, entrepreneurial abilities, and entrepreneurial aspirations by individuals, which drives the allocation of resources through the creation and operation of new ventures.14

The GEI is composed of three building blocks or sub-indexeswhat we call the 3As: entrepreneurial attitudes, entrepreneurial abilities, and entrepreneurial aspirations. These three sub-indexes stand on 14 pillars, each of which contains an individual and an institutional variable that correspond to the micro- and the macro-level aspects of entrepreneurship. Unlike other indexes that incorporate only institutional or individual variables, the GEI pillars include both individual and institutional variables. These pillars are an attempt to capture the open-ended nature of entrepreneurship; analyzing them can provide an in-depth view of the strengths and weaknesses of those listed in the Index. We now describe the 14 pillars of entrepreneurship.

Entrepreneurial Attitude Pillars

Pillar 1: Opportunity Perception. This pillar captures the potential opportunity perception of a population by considering the size of its countrys domestic market and level of urbanization. This opportunity perception potential is an essential ingredient of entrepreneurial start-ups. Within this pillar is the individual variable Opportunity Recognition, which measures the percentage of the population that can identify good opportunities to start a business in the area where they live. However, the value of these opportunities also depends on the size of the market. The institutional variable Market Agglomeration consists of two smaller variables: the size of the domestic market (Domestic Market) and urbanization (Urbanization). The Urbanization variable is intended to capture which opportunities have better prospects in developed urban areas than they do in poorer rural areas. Market Agglomeration is determined by multiplying the size of the domestic market by the percentage of the population living in urban areas.15

Pillar 2: Start-Up Skills. Launching a successful venture requires the potential entrepreneur to have the necessary start-up skills. Skill Perception measures the percentage of the population who believe they have adequate start-up skills. Most people in developing countries think they have the necessary skills to start a business, but their skills usually are acquired through workplace trial and error in relatively simple business activities. In developed countries, business formation, operation, management, etc., require skills that are acquired through formal education and training. Hence education, especially postsecondary education, plays a vital role in teaching and developing entrepreneurial skills. Today there are 150 million students enrolled in some kind of education beyond high school, a 53 percent increase in less than a decade. People all over the world see education as a pathway out of poverty.16

Pillar 3: Risk Acceptance. Of the personal entrepreneurial traits, fear of failure is one of the most serious obstacles, as aversion to high-risk start-up enterprises can retard nascent entrepreneurship. Risk Perception is defined as the percentage of the population who do not believe that fear of failure would prevent them from starting a business. Business Risk reflects the availability and reliability of corporate financial information, legal protections for creditors, and institutional support of intercompany transactions.17

Pillar 4: Networking. Networking combines an entrepreneurs personal knowledge with their ability to use the Internet for business purposes. This combination serves as a proxy for networking, which is also an important ingredient of successful venture creation and entrepreneurship. Entrepreneurs who have better


networks are more successful, can identify more viable opportunities, and can access more and better resources. We define the basic networking potential of a possible entrepreneur by the percentage of the population who personally know an entrepreneur who started a business within the previous two years (Know Entrepreneurs). However, connecting through cyberspace with the rest of the world adds another dimension to networking and opens up much greater opportunities than before (Internet Usage).18

Pillar 5: Cultural Support. This pillar is a combined measure of how a countrys inhabitants view entrepreneurs in term of status and career choice, and how the level of corruption in that country affects this view. Without strong cultural support, the best and brightest do not want to be responsible entrepreneurs, and they decide to enter a traditional profession. Career Status is the average percentage of the population age 18-64 who consider entrepreneurship a good career choice that enjoys high status. The associated institutional variable measures the level of corruption. High levels of corruption can undermine the high status and steady career paths of legitimate entrepreneurs. 19

Entrepreneurial Ability Pillars

Pillar 6: Opportunity Start-Up. This is a measure of start-ups by people who are motivated by opportunity but face regulatory constraints. An entrepreneurs motivation for starting a business is an important sign of quality. Opportunity entrepreneurs are believed to be better prepared, to have superior skills, and to earn more than what we call necessity entrepreneurs. Opportunity Motivation is defined as the percentage of the Total Entrepreneurial Activity (TEA) businesses started to exploit a good opportunity, to increase income, or to fulfill personal aims, which contrasts to those started by people who have no other options for work. The institutional variable applied here is business freedom, one sub-index of the Index of Economic Freedom. The Economic Freedom variable is appropriate for capturing the overall burden of regulation, and the regulatory efficiency of the government in influencing start-ups and operating businesses.20

Pillar 7: Technology Absorption. In the modern knowledge economy, information and communications technologies (ICT) play a crucial role in economic development. Not all sectors provide the same chances for businesses to survive or their potential for growth. The Technology Level variable is a measure of the businesses that are in technology sectors. The Tech Absorption institutional variable is a measure of a countrys capacity for firm-level technology absorption, as reported by the World Economic Forum. The diffusion of new technology, as well as the capability to absorb it, is vital for innovative firms with high growth potential.21

Pillar 8: Human Capital. The prevalence of high-quality human capital is vitally important for ventures that are highly innovative and require an educated, experienced, and healthy workforce in order to continue to grow. An important feature of a venture with high growth potential is the entrepreneurs level of education. The Educational Level variable captures the quality of entrepreneurs; it is widely held that entrepreneurs with higher education degrees are more capable and willing to start and manage high-growth businesses. Employee quality also has an impact on business development, innovation, and growth potential. The institutional variable Staff Training signifies a countrys level of investment in business training and employee development. It can be expected that investing heavily in employees pays off and that training increases their quality.22

Pillar 9: Competition. Competition is a measure of the uniqueness of a businesss product or market, combined with the market power of existing businesses and business groups. The variable Competitors is defined as the percentage of TEA businesses that have only a few competitors offering the same product or service. However, market entry can be prevented or made more difficult if powerful business groups dominate a market. The extent of market dominance by a few business groups is measured by the variable Market Dominance, as reported by the World Economic Forum.23


Entrepreneurial Aspiration Pillars

Pillar 10: Product Innovation. New products play a crucial role in the economy of all countries. While rich countries for years were the source of most new products, developing countries today are producing products that are dramatically cheaper than their Western equivalents. New Product is a measure of a countrys potential to generate new products and to adopt or imitate existing products. In order to quantify the potential for new product innovation, an institutional variable related to technology and innovation transfer seems to be relevant. Technology Transfer is a complex measure of whether a business environment allows the application of innovations for developing new products.

Pillar 11: Process Innovation. Applying and/or creating new technology is another important feature of businesses with high growth potential. New Tech is defined as the percentage of businesses whose principal underlying technology is less than five years old. However, most entrepreneurial businesses do not just apply new technology, they create it. The problem is similar to the New Product variable; whereas many businesses in a developing country may apply the latest technology, they tend to buy or copy it. An appropriate institutional variable applied here is research and development (R&D). Gross Domestic Expenditure on Research and Development (GERD) is the R&D percentage of GDP as reported by the Organisation for Economic Co-operation and Development. While R&D alone does not guarantee successful growth, it is clear that, without systematic research activity, the development and the implementation of new technologiesand therefore future growthwill be inhibited.24

Pillar 12: High Growth. This is a combined measure of the percentage of high-growth businesses that intend to employ at least ten people and plan to grow more than 50 percent in five years (the Gazelle variable) with business strategy sophistication (the Business Strategy variable). It might be argued that a shortcoming of the Gazelle variable is that growth is not an actual but an expected rate. However, a measure of expected growth is in fact a more appropriate measure of aspiration than a measure of realized growth. Business Strategy refers to the ability of companies to pursue distinctive strategies, which involves differentiated positioning and innovative means of production and service delivery.25 High Growth combines high growth potential with a sophisticated strategy.26

Pillar 13: Internationalization. Internationalization is believed to be a major determinant of growth. A widely applied proxy for internationalization is exporting, which demands capabilities beyond those needed by businesses that produce only for domestic markets. However, the institutional dimension is also important: a countrys openness to international entrepreneursthat is, the potential for internationalizationcan be estimated by its degree of globalization. The Internationalization pillar is designed to capture the degree to which a countrys entrepreneurs are internationalized, as measured by the exporting potential of businesses, controlling for the extent to which the country is economically globalized.27

Pillar 14: Risk Capital. The availability of risk finance, particularly equity rather than debt, is an essential precondition for fulfilling entrepreneurial aspirations that are beyond an individual entrepreneurs personal financial resources.28 Here we combine two kinds of finance, the informal investment (Informal Investment) and the institutional depth of capital market (DCM). Informal Investment is defined as the percentage of informal investors in the population age 18-64, multiplied by the average size of individuals investment in other peoples new businesses. While the rate of informal investment is high in factor-driven economies, the amount of informal investment is considerably larger in efficiency- and innovation-driven countries; combining them balances these two effects. Our institutional variable here is DCM, one of the six sub-indexes of the Venture Capital and Private Equity index. This variable is a complex measure of the size and liquidity of the stock market, level of IPO, M&A, and debt and credit market activity, which encompass seven aspects of a countrys debt and capital market.29


The Global Entrepreneurship Index, 2015 Rankings

In this section, we report the rankings of the 130 countries on the Global Entrepreneurship Index and the three sub-indexes. The pillar values of the three sub-indexes are presented later.

We present the rankings in terms of country development, as measured by per capita GDP. The overall ranking of the countries by GEI score is shown in Table 2.1. Anglo-Saxon, Nordic, and Western European countries in the innovation-driven stage of development are in the front ranks. The United States, Canada, Australia, and the United Kingdom lead the rankings. The big surprise is the UKs ranking in 4th place. Two of the five Nordic countries, Denmark and Sweden, are in the top ten, and Iceland and Finland are 11th and 14th, respectivelystill a good performance. Taiwan, the highest ranked Asian country, is in 8th place, and Singapore is 10th. The Netherlands at 13th it is still among the most entrepreneurial nations of the world and Switzerland is also a surprise ranking in 5th place. Besides their high entrepreneurial performance, these countries also represent high levels of income.


Tabl

e 2.1:

The

Glo

bal E

ntre

pren

eurs

hip

Inde

x Ran

k of a

ll Cou

ntrie

s, 20

15

Rank

Co

untry

GD

P 20

12*

GEI

Rank

Co

untry

GD

P 20

12*

GEI

Rank

Co

untry

GD

P 20

12*

GEI

1 Un

ited S

tates

45

336

85.0

44

Bulga

ria

1217

6 42

.7 87

Ni

cara

gua

3510

28

.4 2

Cana

da

3606

7 81

.5 45

Hu

ngar

y 17

073

42.7

88

Kaza

khsta

n 11

978

28.4

3 Au

strali

a 35

608

77.6

46

Cypr

us

2345

2 42

.5 89

Tr

inida

d & T

obag

o 23

260

28.4

4 Un

ited K

ingdo

m

3251

4 72

.7 47

Gr

eece

21

275

42.0

90

Ecua

dor

8443

28

.2 5

Swed

en

3492

6 71

.8 48

Ur

ugua

y 13

821

41.4

91

Egyp

t 57

95

28.1

6 De

nmar

k 32

291

71.4

49

Italy

2692

0 41

.3 92

Bo

livia

4552

28

.0 7

Icelan

d 33

819

70.4

50

Leba

non

1259

2 40

.7 93

Ga

bon

1381

1 27

.7 8

Taiw

an

3481

7 69

.1 51

Cr

oatia

16

002

40.6

94

Iran

1075

4 27

.7 9

Switz

erlan

d 39

294

68.6

52

South

Afric

a 96

55

40.0

95

Philip

pines

38

01

27.7

10

Sing

apor

e 53

266

68.1

53

Malay

sia

1482

2 40

.0 96

Se

nega

l 16

71

27.3

11

Germ

any

3545

3 67

.4 54

Mo

ntene

gro

1060

2 39

.1 97

Ja

maica

75

28

27.2

12

Fran

ce

2981

9 67

.3 55

Co

sta R

ica

1115

6 37

.7 98

Ca

mbod

ia 21

50

26.3

13

Nethe

rland

s 36

466

66.5

56

Arge

ntina

16

425

37.2

99

Rwan

da

1167

26

.2 14

Fin

land

3161

1 65

.7 57

Mo

ldova

29

51

37.2

100

Braz

il 10

264

25.8

15

Norw

ay

4751

7 65

.6 58

Ma

cedo

nia

9323

37

.1 10

1 Ga

mbia.

The

16

67

25.6

16

Belgi

um

3268

0 65

.5 59

Ba

rbad

os

2320

5 37

.1 10

2 Be

nin

1364

25

.6 17

Ire

land

3610

2 65

.3 60

Br

unei

Daru

ssala

m

4597

9 36

.9 10

3 Lib

eria

560

25.5

18

Austr

ia 36

340

64.9

61

China

79

58

36.4

104

India

3390

25

.3 19

Ch

ile

1584

8 63

.2 62

Pa

ragu

ay

5290

36

.0 10

5 Gh

ana

1764

24

.8 20

Un

ited A

rab E

mira

tes

3626

7 61

.6 63

Tu

nisia

8442

35

.5 10

6 Mo

zamb

ique

882

24.3

21

Eston

ia 19

070

60.2

64

Ukra

ine

6394

33

.6 10

7 C

te dI

voire

17

57

24.1

22

Israe

l 27

882

59.9

65

Jord

an

5289

33

.3 10

8 Ta

nzan

ia 13

80

23.6

23

Luxe

mbou

rg

6579

8 57

.2 66

Bo

tswan

a 14

109

33.0

109

Myan

mar

6677

23

.1 24

Qa

tar

7193

1 56

.2 67

Pa

nama

14

320

32.2

110

Zamb

ia 14

74

23.0

25

Turke

y 13

737

54.6

68

Thail

and

8463

32

.1 11

1 An

gola

5262

22

.7 26

Lit

huan

ia 18

785

54.6

69

Nami

bia

6520

31

.9 11

2 Ve

nezu

ela

1162

3 22

.6 27

La

tvia

1575

7 54

.5 70

Ru

ssia

1517

7 31

.7 11

3 Ma

li 10

55

22.5


Rank

Co

untry

GD

P 20

12*

GEI

Rank

Co

untry

GD

P 20

12*

GEI

Rank

Co

untry

GD

P 20

12*

GEI

28

Kore

a 27

991

54.1

71

Sri L

anka

53

84

31.1

114

Burki

na F

aso

1298

22

.1 29

Sl

oven

ia 24

495

53.1

72

Lao P

DR

2522

31

.1 11

5 Ca

mero

on

2025

22

.0 30

Po

rtuga

l 21

056

50.8

73

Libya

10

073

31.0

116

Mada

gasc

ar

843

22.0

31

Saud

i Ara

bia

2734

6 49

.6 74

Pe

ru

9431

30

.9 11

7 Si

erra

Leon

e 11

71

21.6

32

Spain

26

089

49.6

75

Mexic

o 13

067

30.7

118

Swaz

iland

45

22

21.4

33

Japa

n 31

429

49.5

76

Alba

nia

8123

30

.6 11

9 Ma

urita

nia

2244

21

.1 34

Pu

erto

Rico

30

248

48.9

77

Domi

nican

Rep

ublic

87

94

30.6

120

Indon

esia

4272

21

.0 35

Cz

ech R

epub

lic

2382

4 48

.9 78

Se

rbia

9683

30

.6 12

1 Su

rinam

e 76

41

20.7

36

Colom

bia

9143

47

.9 79

Al

geria

74

00

30.2

122

Guate

mala

4397

20

.3 37

Ku

wait

4063

7 47

.7 80

Ho

ndur

as

3657

29

.8 12

3 Pa

kistan

24

02

20.1

38

Polan

d 18

307

47.4

81

El S

alvad

or

6125

29

.6 12

4 Bu

rund

i 48

3 18

.4 39

Om

an

3966

5 47

.3 82

Mo

rocc

o 45

73

29.4

125

Ethio

pia

971

17.2

40

Hong

Kon

g 44

770

45.9

83

Bosn

ia 73

56

28.9

126

Chad

18

70

16.6

41

Slov

akia

2118

5 45

.4 84

Ni

geria

22

95

28.9

127

Guya

na

2930

16

.2 42

Ro

mania

11

946

45.3

85

Vietn

am

3318

28

.8 12

8 Ma

lawi

660

15.6

43

Bahr

ain

2154

3 45

.1 86

Ke

nya

1522

28

.5 12

9 Ug

anda

11

65

15.1

130

Bang

lades

h 16

22

14.4

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The United States is in first place. Australia, Canada, and the Netherlands are good performers, but they all have weaknesses in at least one of the sub-indexes. Of the most populous EU countries, only the UK, in 4th place, is among the top ten countries. The other large European countries rank in the middle: France is 12th, Germany is 11th, Poland is 38th, and Spain is 32st, followed by Italy in 49th place. While the UK, France, and Germany are relatively well balanced over the 15 pillars, Poland, Spain, and Italy are entrepreneurially less efficient.

A likely explanation for the EU countries relatively weak economic performance over the last decade is their low level of entrepreneurship; the same applies to Japan, which took 36th place. Factor-driven countries with low GDPs, such as Pakistan, Bangladesh, Uganda and other poor African countries, are at the bottom of the entrepreneurship ranking, as expected. At the same time, these countries entrepreneurial performance is the least unbalanced. However, some countriesincluding two former socialist countries, Serbia and Russia, innovation-driven Italy, and two South American countries, Brazil and Trinidad and Tobagoshould have higher levels of entrepreneurship, as implied by their development trend lines and more efficient use of entrepreneurial resources.

The Ranking of the 3As

By definition, the GEI is a three-component index that takes into account the different aspects of the entrepreneurial ecosystem. However, all three components, called sub-indexes, are in themselves complex measures that include various characteristics of entrepreneurial attitudes, entrepreneurial abilities, and entrepreneurial aspirations.

Entrepreneurial attitudes are societies attitudes toward entrepreneurship, which we define as a populations general feelings about recognizing opportunities, knowing entrepreneurs personally, endowing entrepreneurs with high status, accepting the risks associated with business start-ups, and having the skills to launch a business successfully. The benchmark individuals are those who can recognize valuable business opportunities and have the skills to exploit them; who attach high status to entrepreneurs; who can bear and handle start-up risks; who know other entrepreneurs personally (i.e., have a network or role models); and who can generate future entrepreneurial activities.

Moreover, these people can provide the cultural support, financial resources, and networking potential to those who are already entrepreneurs or want to start a business. Entrepreneurial attitudes are important because they express the general feeling of the population toward entrepreneurs and entrepreneurship. Countries need people who can recognize valuable business opportunities, and who believe that they have the skills required to exploit these opportunities. Moreover, if a nations attitude toward entrepreneurship is positive, it will generate cultural support, financial support, and networking benefits to those who want to start businesses.

Entrepreneurial abilities refer to entrepreneurs characteristics and those of their businesses. Different types of entrepreneurial abilities can be distinguished within the realm of new business efforts. Creating businesses may vary by industry sector, the legal form of organization, and demographics such as age and education. We define entrepreneurial abilities as start-ups in the medium- or high-technology sectors that are initiated by educated entrepreneurs, and launched because a person is motivated by an opportunity in an environment that is not overly competitive. Entrepreneurial abilities also refer to the equal participation of women in start-ups and other opportunities. In order to calculate the opportunity start-up rate, we use the GEM TEA Opportunity Index. TEA captures new start-ups not only as the creation of new ventures but also as start-ups within existing businesses, such as a spinoff or other entrepreneurial effort. Differences in the quality of start-ups are quantified by the entrepreneurs education levelthat is, if they have a postsecondary educationand the uniqueness of the product or service as measured by the level of competition. Moreover, it is generally maintained that opportunity motivation is a sign of better planning, a more sophisticated strategy, and higher growth expectations than necessity start-ups.

Entrepreneurial aspiration reflects the quality aspects of start-ups and new businesses. Some people simply hate their employer and want to be their own boss, while others want to create the next Microsoft. Entrepreneurial aspirations is defined as the early-stage entrepreneurs effort to introduce new products and/or services, develop new


production processes, penetrate foreign markets, substantially increase their companys staff, and finance the business with formal and/or informal venture capital. Product and process innovation, internationalization, and high growth are considered the key characteristics of entrepreneurship. Here we added a finance variable to capture the informal and formal venture capital potential that is vital for innovative start-ups and high-growth firms.

Each of these three building blocks of entrepreneurship influences the other two. For example, entrepreneurial attitudes influence entrepreneurial abilities and entrepreneurial aspirations, while entrepreneurial aspirations and abilities also influence entrepreneurial attitudes.

Figure 2.2 shows the relationship between the GEI, the three sub-indexes, and national per capita wealth, based on purchasing power parity GDP. In all the figures, we provide the associated trend line and R2 values. All the trend lines are based on third-degree polynomial equations.

Figure 2.2: The Three Sub-Indexes in Terms of Per Capita Real GDP (2006-2013, all data included)

Number of observations: 425 As an outlier, UAE has been removed from the graphs.

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For example, the overall Index shows a good fit and a positive relationship between development and entrepreneurship. The two move in the same direction, with an R2 = 0.78, which implies a close, strong relationship between entrepreneurship and economic development. Unlike other entrepreneurship measures that find an L-shaped (self-employment rate) or a U-shaped (Total Early-Phase Entrepreneurial Activity Index) relationship between entrepreneurship and development, we find a mild S-shaped relationship.

The relationship between the Entrepreneurial Attitudes (ATT) sub-index and development is shown in the right-hand figure. The relationship is similar to the logarithmic function, implying that the overall entrepreneurship attitude increases as the country develops. The explanatory power, based on the R2 = 0.67, shows a significant, strong correlation between ATT and per capita GDP.

The lower-left figure contains the Entrepreneurial Abilities (ABT) sub-index values in terms of economic development. The explanatory power, R2 = 0.74, is the highest among the three sub-indexes, implying a close and strong relationship between entrepreneurial abilities and development

The trend of the Entrepreneurial Aspirations (ASP) sub-index is probably no surprise. The explanatory power of R2 = 0.67 is significant and strong.

Table 2.2 shows the ranking of the top 25 countries by GEI score and their sub-index rankings. The sub-index points and rankings for all 130 countries can be found in the Appendix. For example, the United States is first in the overall Index, and also in two of the three sub-indexes. Australia is 3rd in attitudes and in abilities but 5th in aspirations, as it is more interested in high-impact entrepreneurship than in replicative activities. Chile represents a more unbalanced case, ranking 19th in the overall Index, 6th in attitudes, 34th in abilities, and 15th in aspirations. Generally, countries that rank at the bottom in GEI also rank at the bottom of the three sub-indexes.

Table 2.2: The Global Entrepreneurship Index and Sub-Index Ranks of the First 25 Countries, 2015

Country GEI GEI Rank

ATT ATT Rank

ABT ABT Rank

ASP ASP Rank

United States 85.0 1 83.4 1 84.7 2 86.8 1 Canada 81.5 2 79.2 2 85.7 1 79.6 2 Australia 77.6 3 77.9 3 81.3 5 73.5 5 United Kingdom 72.7 4 70.9 10 82.8 4 64.3 16 Sweden 71.8 5 77.1 4 74.7 7 63.5 18 Denmark 71.4 6 59.4 16 83.4 3 71.6 8 Iceland 70.4 7 71.5 8 69.9 13 69.7 13 Taiwan 69.1 8 60.8 14 67.5 15 79.0 3 Switzerland 68.6 9 62.8 12 72.0 9 71.1 10 Singapore 68.1 10 52.1 25 73.5 8 78.8 4 Germany 67.4 11 59.9 15 72.0 10 70.3 11 France 67.3 12 62.0 13 70.3 12 69.7 12 Netherlands 66.5 13 71.0 9 68.1 14 60.3 26 Finland 65.7 14 75.8 5 59.3 20 62.0 21 Norway 65.6 15 72.8 7 75.4 6 48.8 41 Belgium 65.5 16 57.5 18 66.1 17 72.8 6 Ireland 65.3 17 57.9 17 71.5 11 66.5 14 Austria 64.9 18 65.6 11 66.5 16 62.6 20 Chile 63.2 19 74.7 6 50.4 34 64.5 15 United Arab Emirates 61.6 20 55.8 21 57.6 23 71.4 9


Estonia 60.2 21 57.2 19 61.8 19 61.7 22 Israel 59.9 22 54.7 22 53.2 31 71.7 7 Luxembourg 57.2 23 45.1 43 64.9 18 61.6 23 Qatar 56.2 24 52.8 23 59.0 21 56.7 31 Turkey 54.6 25 51.7 27 48.5 37 63.7 17

Tables 2.3-2.5 list the rankings and the 14 pillar values of the first 25 countries for the three sub-indexes. Each table gives the pillar values for each of the pillars that make up the respective index. The ranks and the pillar values for all the 130 countries can be found in the Appendices.

As stated earlier, entrepreneurial attitude is defined as the general attitude of a countrys population toward recognizing opportunities, knowing entrepreneurs personally, attaching high status to entrepreneurs, accepting the risks associated with a business start-up, and having the skills to successfully launch businesses. Entrepreneurial attitudes are important because they express the populations general feelings toward entrepreneurs and entrepreneurship.

Table 2.3: Entrepreneurial Attitudes Sub-Index and Pillar Values for the First 25 Countries, 2015*

Countries ATT Opportunity Perception

Start-Up Skills

Risk Acceptance

Networking Cultural Support

United States 83.4 1.00 1.00 0.88 0.63 0.83 Canada 79.2 1.00 0.66 0.87 0.67 0.86 Australia 77.9 0.92 0.94 0.82 0.67 0.80 Sweden 77.1 1.00 0.61 0.83 1.00 0.90 Finland 75.8 0.73 0.71 0.81 1.00 0.96 Chile 74.7 1.00 0.95 0.79 0.71 0.77 Norway 72.8 0.91 0.53 0.92 0.87 0.90 Iceland 71.5 0.44 0.89 0.91 1.00 0.67 Netherlands 71.0 0.60 0.71 0.81 0.88 1.00 United Kingdom 70.9 0.69 0.60 0.81 0.71 0.79 Austria 65.6 0.65 0.78 0.75 0.85 0.64 Switzerland 62.8 0.55 0.47 0.94 0.73 0.70 France 62.0 0.66 0.41 0.70 0.76 0.74 Taiwan 60.8 0.70 0.48 0.64 0.69 0.62 Germany 59.9 0.65 0.44 0.66 0.57 0.77 Denmark 59.4 0.70 0.52 0.78 0.84 0.37 Ireland 57.9 0.30 0.71 0.75 0.74 0.72 Belgium 57.5 0.63 0.52 0.66 0.46 0.64 Estonia 57.2 0.40 0.65 0.57 0.80 0.57 Saudi Arabia 56.9 1.00 0.78 0.26 0.69 0.62 United Arab Emirates 55.8 0.67 0.36 0.43 0.73 0.79 Israel 54.7 0.65 0.43 0.55 0.70 0.63 Qatar 52.8 1.00 0.15 0.58 1.00 0.66 Spain 52.6 0.29 0.92 0.64 0.61 0.49 Singapore 52.1 0.43 0.38 0.79 0.38 0.76

*Pillar values are the normalized pillar scores after the average pillar correction.


The benchmark individuals are those who can (1) recognize valuable business opportunities, (2) have the necessary skills to exploit these opportunities, (3) attach high status and respect to entrepreneurs, (4) handle start-up risks, and (5) know entrepreneurs personally (i.e., have a network or role models). Moreover, these people can provide the cultural support, financial resources, and networking potential to those who are already entrepreneurs or want to start a business. The United States leads the Entrepreneurial Attitudes Index, followed by Canada, Australia, Sweden, Finland, Chile, Norway, Iceland, Netherlands, and the UK. Chiles 6th place is a very strong showing for a South American country. Factor-driven African and Asian countries, including Swaziland, Mali, Sierra Leone, Ethiopia, Bangladesh, Pakistan, Malawi, Chad, and Burundi, are at the bottom.

High entrepreneurial abilities are associated with start-ups in the medium- or high-technology sectors that are initiated by educated entrepreneurs and launched because of opportunity motivation in a not too competitive environment. Quality differences in start-ups are quantified by the motivation and education level of the entrepreneur, and the uniqueness of the product or service, as measured by the level of competition.

Canada ranks number one on the Entrepreneurial Abilities Index and has a very strong showing in two of the four pillars, including Human Capital and Competition. The U.S. ranks second and is relatively weak in Opportunity Start-up and Technology Absorption. Australia is stronger than the U.S. in two pillars, Opportunity Start-Ups and Technology Absorption, but weaker in Human Capital and very weak in Competition. The UK ranks 4th, with a significantly lower entrepreneurial abilities score than the United States and Australia, but it is relatively strong in Competition, implying that fresh entrepreneurs are mainly looking for market niches that do not have many competitors. The large share of start-ups initiated in the medium- and high-technology sectors is also a strong point of the UK. The first four countries are followed by Australia, Norway, Sweden, Singapore, Switzerland, and Germany.

Table 2.4: Entrepreneurial Abilities Sub-Index and Pillar

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Indice de Emprendimiento Mundial 2015

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