Measuring the Business Environment for Entrepreneurship: SMEs, Quality of Institutions and Development

Chiara Guglielmetti

No 912, Openloc Working Papers from Public policies and local development

Abstract: This paper aims to contribute to understand the role of entrepreneurship in fragile states, which despite the practical interest and relevance has been somewhat disregarded in academic research. Given the necessity to support policy formulation with appropriate and relevant measurement of entrepreneurship and the business environment, the primary focus in this paper is to scrutinise existing international indicators, in particular the World Bank Doing Business Indicators (DBIs) and ask whether they are able to capture entrepreneurial dynamics and constructively guide policy making towards entrepreneurship in fragile state. The paper argues that DBIs give a partial picture of the nexus between institutional context, policy reforms, entrepreneurship and economic development. In particular, DBIs analysis fails in addressing three pivotal aspects: first, the process through which individuals become entrepreneurs, second, industrial cooperative and competitive relationships both intersectoral and across different sectors of the economy, and third, the characteristics of workers employed in enterprises. Consequently, DBIs are not able to capture innovation and changing processes, and miss some pivotal features of both the internal and the external environment of the enterprise. The paper maintains that these shortcomings are particularly serious when referred to fragile countries and discusses how and to what extent DBIs lead to adverse-effect policy recommendations, being inadequate for policy planning in fragile areas.

Date: 2009
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