The Effect of Business Regulations on Nascent and Young Business Entrepreneurship


We examine the relationship, across 39 countries, between regulation and entrepreneurship using a new two-equation model. We find the minimum capital requirement required to start a business lowers entrepreneurship rates across countries, as do labour market regulations. However the administrative considerations of starting a business – such as the time, the cost, or the number of procedures required – are unrelated to the formation rate of either nascent or young businesses. Given the explicit link made by Djankov et al. [Djankov et al. 2002, ‹The Regulation of Entry’, Quarterly Journal of Economics 117(1), 1–37] between the speed and ease with which businesses may be established in a country and its economic performance – and the enthusiasm with which this link has been grasped by European Union policy makers – our findings imply this link needs reconsidering.


  1. Acs, Z. J., P. Arenius, M. Hay and M. Minniti, 2005, Global Entrepreneurship Monitor, 2004 Executive Report, Wellesley, MA: Babson College

  2. Armour, J. and D. J. Cumming, 2005, ‚Bankruptcy Law and Entrepreneurship’, American Law & Economics Association Annual Meetings, Paper 26

  3. Audretsch D. B., Grilo I., Thurik A. R. 2007, ‚Explaining Entrepreneurship and the Role of Policy: a Framework’. In: Audretsch D. B., Grilo I., Thurik A. R. (eds) Handbook of Entrepreneurship Policy. Edward Elgar Publishing Ltd, Cheltenham, UK, forthcoming

    Google Scholar 

  4. Baumol W. J., 1990, Entrepreneurship: Productive, Unproductive and Destructive. Journal of Political Economy 98(5), 893–921

    Article  Google Scholar 

  5. Blanchflower D. G., Oswald A., Stutzer A.. 2001, Latent Entrepreneurship Across Nations. European Economic Review 45(4–6), 680–691

    Article  Google Scholar 

  6. Botero J., Djankov S., La Porta R., Lopez-de-Silanes F., Shleifer A.. 2004, The Regulation of Labor. Quarterly Journal of Economics 119, 1339–1382

    Article  Google Scholar 

  7. Capelleras, J., K. Mole, F. J. Greene and D. J. Storey, 2005, ‚Do More Heavily Regulated Economies have Poorer Performing New Ventures? Evidence from Britain and Spain’, CSME Working Paper Series no. 86, Coventry: University of Warwick

  8. Dennis, W. J., Jr., 2004, ‚Creating and Sustaining a Viable Small Business Sector’, Paper presented at School of Continuing Education, University of Oklahoma, 27th October

  9. Djankov S., La Porta R., Lopez-de-Silanes F., Shleifer A. 2002, The Regulation of Entry Quarterly Journal of Economics 117(1), 1–37

    Article  Google Scholar 

  10. Grilo I., Irigoyen J., 2006, Entrepreneurship in the EU: To Wish and Not to Be. Small Business Economics, 26(4), 305–318

    Article  Google Scholar 

  11. Grilo I., Thurik A. R., 2005, Latent and Actual Entrepreneurship in Europe. International Entrepreneurship and Management Journal 1(4), 441–459

    Article  Google Scholar 

  12. Grilo, I. and A. R. Thurik, 2006, ‚Entrepreneurship in the Old and New Europe’, in Santarelli, E. (ed.), Entrepreneurship, Growth, and Innovation: The Dynamics of Firms and Industries: International Studies in Entrepreneurship, Vol. 12, Berlin: Springer Science, pp. 75–103

  13. Lundström A., Stevenson L. 2002, Entrepreneurship Policy for the Future. Swedish Foundation for Small Business Research, Stockholm

    Google Scholar 

  14. Lundström A., Stevenson L. 2005, Entrepreneurship Policy: Theory and Practice. Kluwer Academic Publishers, Boston, MA

    Google Scholar 

  15. Reynolds P. D., Hay M., Camp S. 1999, Global Entrepreneurship Monitor, 1999 Executive Report. Babson College, Wellesley, MA

    Google Scholar 

  16. Reynolds P. D., Bygrave W. D., Autio E., Cox L. W., Hay M. 2002, Global Entrepreneurship Monitor, 2002 Executive Report. Babson College, Wellesley, MA

    Google Scholar 

  17. Reynolds P. D., Bosma N., Autio E., Hunt S., de Bono N., Servais I., Lopez-Garcia P., Chin N. 2005, Global Entrepreneurship Monitor: Data Collection Design and Implementation 1998–2003. Small Business Economics 24(3), 205–231

    Article  Google Scholar 

  18. Stel A.J. van, Storey D.J. 2004, ‚The Link between Firm Births and Job Creation: Is there a Upas Tree Effect?’. Regional Studies 38(8), 893–909

    Article  Google Scholar 

  19. Stel A. J. van, Carree M. A., Thurik A.R. 2005, The Effect of Entrepreneurial Activity on National Economic Growth. Small Business Economics 24(3), 311–321

    Article  Google Scholar 

  20. van Stel, A. J., D. J. Storey and A. R. Thurik, 2006, ‚The Effect of Business Regulations on Nascent and Actual Entrepreneurship’, Papers on Entrepreneurship, Growth and Public Policy no 04-2006. Max Planck Institute of Economics, Jena

  21. Sternberg R., Wennekers S. 2005, Determinants and Effects of New Business Creation Using Global Entrepreneurship Monitor Data. Small Business Economics 24(3), 193–203

    Article  Google Scholar 

  22. Storey, D. J., 2003, ‚Entrepreneurship, Small and Medium Sized Enterprises and Public Policies’. in Z. J. Acs and D.␣B.␣Audretsch (eds.), Handbook of Entrepreneurship Research, Boston/Dordrecht: Kluwer Academic Publishers, USA/NL pp. 473–514

  23. Verheul, I., S. Wennekers, D. Audretsch and R. Thurik, 2002, ‚An Eclectic Theory of Entrepreneurship: Policies, Institutions and Culture’. in D. B. Audretsch, A. R. Thurik, I.␣Verheul and A. R. M. Wennekers (eds.), Entrepreneurship: Determinants and Policy in a European-US Comparison, Boston/Dordrecht: Kluwer Academic Publishers, pp. 11–81

  24. Verheul I., van Stel A. J., Thurik A. R. 2006, Explaining Female and Male Entrepreneurship at the Country Level. Entrepreneurship and Regional Development 18(2), 151–183

    Article  Google Scholar 

  25. Wennekers S., van Stel A., Thurik R., Reynolds P. 2005, Nascent Entrepreneurship and the Level of Economic Development. Small Business Economics 24(3), 293–309

    Article  Google Scholar 

  26. World Bank, 2005, Doing Business in 2005; Removing Obstacles to Growth, Washington, DC: World Bank

Download references


We are grateful to Zoltan Acs, Sander Wennekers and two anonymous referees for their comments on earlier drafts of the paper. The paper has been written in the framework of the research program SCALES carried out by EIM and financed by the Dutch Ministry of Economic Affairs.

Author information



Corresponding author

Correspondence to André van Stel.

Additional information

Prepared for: Small Business Economics (2007), Special issue GEM conference 2005

Appendix A: Estimation sample

Appendix A: Estimation sample

Table A.1 lists the distribution of observations in our estimation sample over the countries. A country can have 4 observations maximum (for the years 2002–2005). It is also indicated whether the country is ranked as a poor country. In total we have 112 observations 26 of which are of poor countries.

Table A.1 Estimation sample

Rights and permissions

Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License ( ), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.

Reprints and Permissions

About this article

Cite this article

van Stel, A., Storey, D.J. & Thurik, A.R. The Effect of Business Regulations on Nascent and Young Business Entrepreneurship. Small Bus Econ 28, 171–186 (2007).

Download citation

Key words

  • Global Entrepreneurship Monitor
  • nascent entrepreneurship
  • regulation
  • World Bank Doing Business
  • young businesses

JEL classifications

  • K20
  • L26
  • L51
  • M13
  • O57