Research & News
Bookmark and Share

Canadian provinces trail U.S. states on key indicators of entrepreneurship

Media Contacts:
Release Date: July 14, 2008

VANCOUVER, BC- Canadian provinces are failing to keep up to U.S. states on some of the most important measures of entrepreneurial activity, according to a new study released today by independent research organization the Fraser Institute.

"U.S. states appear to be doing a better job of encouraging entrepreneurial activity than Canadian provinces. It is critical that Canada develop the right policies to encourage entrepreneurial activity," said Niels Veldhuis, co-author of Measuring Entrepreneurship, Conceptual Framework and Empirical Indicators and the Fraser Institute's director of fiscal studies.

"There is growing recognition that entrepreneurship is critical to economic prosperity. Entrepreneurship encompasses the process of bringing new ideas into the market, is a key driver of economic change, and creates jobs, opportunities, and wealth."

Measuring Entrepreneurship, Conceptual Framework and Empirical Indicators is the first study in a longer-term project to develop a comprehensive measure of entrepreneurship. The study examines the most important definitions of entrepreneurship and widely cited and used measures of entrepreneurship.

The study examines six indicators of entrepreneurship and presents results and rankings for the 10 Canadian provinces and 50 U.S. states on each indicator.

The main measures explored in the study are:

1) Business creation: the process of starting a new business, the primary way in which entrepreneurs commercialize ideas and one of the most important measures of entrepreneurship.

The top 10 jurisdictions with the highest net business creation rates were U.S. states. Nevada had the highest net small business creation rate at 5.2%. The highest ranking Canadian province, Alberta (ranked 11th), had a net business creation rate of 2.5%. BC and Ontario were the only other provinces in the top half of the rankings; the remaining provinces ranked 49th or lower.

2) Self-employment: individuals who make an occupational choice and take the risk of working on their own, rather than for an employer.

Canadian provinces generally had high rates of self-employment and, as a result, all were in the top-half of the 60 jurisdictions. BC is the top-ranked jurisdiction with a self-employment rate of 11.9%.

"While self employment is one of the most commonly used measures of entrepreneurship, there are several disadvantages associated with it. Research shows that about half of the variation in self-employment rates can be explained by industrial composition and demographics," said Keith Godin, study co-author and senior policy analyst at the Fraser Institute.

3) Small businesses: defined as having 1-49 employees, these businesses represent another vehicle though which entrepreneurs bring innovations into the market.

There is very little variation among 60 jurisdictions in terms of small businesses and Canadian provinces are distributed throughout the rankings.

Quebec and Newfoundland ranked second and third, respectively, on the number of businesses with 1-9 employees as a percentage of total businesses. Ontario (54th) and Manitoba (59th) were the lowest ranked provinces.

Manitoba ranked first on the number of businesses with 10-49 employees as a percentage of total businesses. The lowest ranked jurisdiction was Quebec.

4) Venture capital: the resources raised for the purpose of investing in potential high-growth businesses.

Of all the Canadian provinces and the U.S. states, Massachusetts had the highest venture capital per person ($379) in 2005. Massachusetts and California ($296 per person) attracted significantly more venture capital to fund entrepreneurial businesses than any other jurisdiction. Quebec, the only province in the top 10, recorded $93 in venture capital per person. Only three other provinces (Ontario, BC, and Saskatchewan) ranked in the top half.

5) Research and development (R&D): the pursuit of a new product or process and the part of entrepreneurship that occurs within existing and typically larger firms.

Canadian provinces trailed their U.S. counterparts on industrial R&D spending. Michigan had the highest level of industrial R&D spending as a percent of GDP at 4.3%. Only two Canadian provinces were in the top half of the rankings, Quebec at 18th and Ontario at 22nd. The remaining Canadian provinces generally occupied the bottom quarter of the rankings.

6) Patents: a proxy for the innovative aspect of entrepreneurship.

Overall, the U.S. states far outperformed the Canadian provinces in terms of their numbers of patents relative to population. In fact, all Canadian provinces were in the bottom third of the rankings. The top six states-Idaho, Vermont, California, Massachusetts, Oregon, and Minnesota-generated more than five times the number of patents, relative to population, than Alberta, the highest ranked Canadian province (42nd).

"There are several other measures of entrepreneurship that are worth examining such as the level of business expansion, innovation, initial public offerings and business losses. Unfortunately, current data are either not available or comparable," Godin said.

Measuring Entrepreneurship, Conceptual Framework and Empirical Indicators lays the groundwork for developing a comprehensive measure of entrepreneurship.

"Our goal is to determine more precisely where entrepreneurship flourishes and why some regions have more entrepreneurship than others. This will allow us to more accurately assess the effectiveness of government polices aimed at increasing the level of entrepreneurship," Veldhuis said.



Loading...