How do You Measure Entrepreneurship?

Vikas Joshi
January 30, 2011

How can you tell that a society is highly entrepreneurial? Simply counting the number of small businesses will not cut it, because not all small businesses propel economic activity. I have often wondered if it is utter folly to confuse small business with entrepreneurship. By serendipity, I found the answer.

A couple of months back I met a bunch of entrepreneurship researchers and scholars at the World Entrepreneurship Forum in Lyon, France. One of them was Zoltan Acs, professor at George Mason University.  He founded the Global Entrepreneurship and Development Institute and devised a way to measure entrepreneurship potential of nations - known as the GEDI index.

The Global Entrepreneurship and Development Index (GEDI) is comprised of three sub-indexes, each measuring the context of entrepreneurship in a society. Here is an excerpt from Prof. Acs's article on GEDI.

1. Attitude

Entrepreneurial attitudes are defined as the general disposition of a country’s population toward entrepreneurs, entrepreneurship, and business start-ups. The index in-volves measures for the population’s opportunity perception potential, the perceived start-up skills, feel of fear of failure, networking prospects, and cultural respect for the entrepreneur.

2. Activity

Entrepreneurial activity is defined as the start-up activity in tech sector. The entrepreneur’s level of education is an important measure. Level of competition is another important measure.

3. Aspiration

Entrepreneurial aspiration, is defined as the efforts of the early-stage entrepreneur to introduce new products and services, develop new production processes, penetrate foreign markets, substantially increase the number of firm employees, and finance the business with either formal or informal venture capital, or both. The role of ‘gazelles’ or high-growth businesses is also vital to entrepreneurship as are internationalisation of trade and the availability of risk capital.

As you can see, this index is a sophisticated measure, which really focuses on the job-creation potential  of entrepreneurship and hence the economic activity fueled by it. A big improvement over reporting the number of start-ups.

On this scale, then, the top 5 countries are Denmark, Canada, US, Sweden, and New Zealand. Among others, UK is at 14, France ranks 18, China 40 and India 53.