New Firm Registration and the Business Cycle

Type Working Paper
Title New Firm Registration and the Business Cycle
Author(s)
Publication (Day/Month/Year) 2013
URL http://www.doingbusiness.org/special-features/conference/~/media/GIAWB/Doing​Business/Documents/Miscellaneous/Conference2014/S1-2.pdf
Abstract
This paper studies the relationship between entrepreneurship and economic growth using new panel data on the number of new firm registrations in 109 countries for the period 2002-2012. First, we find strong evidence of a pro-cyclical pattern in entrepreneurship. Second, we examine heterogeneous relationships between new firm registration and the business cycle and find that higher levels of financial development and better business environments are associated with a stronger pro-cyclicality of entrepreneurship both across countries and within countries over time. Our results are robust to various measures of business regulation, such as the cost and time of starting a new firm and closing an insolvent firm. These findings suggest that fostering an efficient regulatory environment for the financial and private sector is important for encouraging a speedier recovery in the formation of new firms during economic expansions and aiding the efficient wind-down of insolvent firms during economic slowdowns.

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