The Global Financial Crisis Led to a Sharp Drop in New Business Registration

New firm creation dropped sharply amid the global financial crisis -- first in developed countries and later, as the crisis spread, in the rest of the world, according to a new working paper and global database by Leora Klapper and Inessa Love. 

The drop in new business registration was sharper in countries with higher levels of financial development, though nearly all countries saw declines. That was most likely because of the credit crunch and loss of access to start-up capital. 

The drop was smaller in lower-income countries, which tend to have lower rates of new business creation to begin with and tend to see smaller changes brought on by economic shocks. The data from 112 countries also shed light on the relationship between the regulatory environment, institutional quality and entrepreneurship. 

For example, new business registration is more likely to occur in countries with good governance, a strong legal and regulatory environment, low corporate taxes, and less red tape. Indeed, the pace of new registration was the fastest in countries with the lowest cost and least number of procedures to start a business.