Economic development and business creation

Recent data suggest a continuous decline in the business creation rates across business sectors and regions in the USA. While there are a few factors (such as a decline in population and an increase in business consolidation) that seem to collectively explain some of the trend for at least some areas, the overall phenomenon is still not understood. This study contributes to this line of research by assessing the relationship between economic development and business creation rates in an international setting. This study uses an 8-year and 130 countries (unbalanced) panel dataset to analyze this relationship. It finds the relationship between economic development and business creation rates to be linear and negative suggesting that the USA is not an outlier, and that business creation rates decrease in other developed economies as well. Since previous studies suggested that a decrease in business formation rates will impact the economy negatively, policymakers need to take corrective actions such as subsidies for new businesses and taxes for established ones.