The Fraser Institute

The Fraser Institute

December 06, 2007 06:00 ET

The Fraser Institute: U.S. States Best at Encouraging Entrepreneurs and Small Business Start Ups; Atlantic Canada the Worst

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Dec. 6, 2007) - The United States is more successful than Canada at encouraging entrepreneurs and the creation of new businesses, according to a new study released today by independent research organization The Fraser Institute.

Nevada had the highest net small business creation rate at 5.2 per cent, followed by Florida (4.7 per cent) and Utah (4.5 per cent). They are followed in order by Idaho, Montana, Virginia, Georgia, Missouri, Arizona, and Delaware, which shows a diverse geographic pattern of entrepreneurial success across the United States.

Alberta is the highest ranked Canadian province (11th) with a net business creation rate of 2.4 per cent. Ontario is the next highest Canadian province at 21st with a net business creation rate of 1.9 per cent followed by British Columbia at 24th overall with a rate of 1.7 per cent.

Newfoundland, Saskatchewan, Nova Scotia, New Brunswick, and Prince Edward Island occupy the bottom five spots among the 60 jurisdictions. In fact, Saskatchewan, Nova Scotia, New Brunswick, and Prince Edward Island recorded negative net business creation rates - meaning they actually lost businesses over the time period studied.

"Small and entrepreneurial businesses are key to creating new jobs, innovation and ultimately economic prosperity. Consequently, states or provinces with a high level of new business creation are going to have more dynamic and faster growing economies," said Jason Clemens, Resident Scholar with The Fraser Institute and co-author of Measuring Business Creation in Canada and the United States.

The peer-reviewed study finds that most new business creation occurs in the smallest firms, those with less than 10 employees. In 2004 (the most recent year for which detailed data is available), 97.6 per cent of business creation (start-ups) and 95.9 per cent of net business creation (starts-ups minus closures) in Canada occurred in firms with less than 10 employees.

Using unique data provided by Statistics Canada, the study measures the creation of new, small businesses (business "births") during 2002 and 2003 in all 50 U.S. states and 10 Canadian provinces as well as comparing the number of new businesses to the number of firms that go out of business (business "deaths") each year to come up with a net measure of business creation.

"In recent years, governments have recognized the importance of small businesses and have begun instituting policies to encourage small business development and entrepreneurship," Clemens said.

"A province with a negative rate of new business creation clearly has not enacted the correct type of policies to encourage business or improve its economy."

The study also examined business creation by industrial sector. From a Canadian perspective, the construction, professional services, and other service sectors were particularly important drivers in terms of numbers and rates of growth. Retail, waste management, and remedial service sectors were also significant drivers, but to a lesser extent. Business creation patterns across industrial sectors were generally the same among the Canadian provinces.

"Business creation is one of the most important measures of entrepreneurial activity. It not only represents the commercialization of ideas, but it also indicates dynamism in an economy," Clemens said.

"Canada lags behind the United States in net business creation. The challenge for Canada is to develop policies that will encourage entrepreneurial activity and help Canadians keep pace with business growth in the United States."

The Fraser Institute is an independent research and educational organization with offices in Calgary, Montreal, Tampa, Toronto, and Vancouver. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.

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