As a first order of approximation, I think there are two important dominant factors affecting proliferation or lack thereof of startups in a country:

1) Social Rule Obey Factor: This signifies how the people in the country are willing to follow social and legal rules, even when they appear frivolous. This factor obviously is hard to quantify, but an easy heuristic to compare countries in this dimension is to look at their traffic pattern: In countries like India, China, Russia, Turkey the traffic is mess, due to the fact people do not really care about the rules, e.g. "if other people obey the rules I can get ahead with not obeying". Having a high SROF, i.e. "follow the leader type society" is an impediment to innovation because innovators and entrepreneurs are by their very nature anti-authoritarian and like to go against the rules (e.g. Feynman's safe breaking adventures at Los Alamos), this is sometimes called the "hacker culture". On the other hand, too low a SROF leads to anything goes type societies which may be detrimental to developing important aspects of the entrepreneurship culture, e.g. IP.

2) Entrepreneurial Spirit Factor: This is what people have discussed in their comments here, a lack of fear of failing, taking risks, etc. The ESF of a society correlates highly to historical factors, e.g. in the US it's high due to the "pioneer spirit", in Israel due to the sense or urgency (surrounded by enemies). It's very hard to boost up ESF in the short term. As Adam Shand has put it: "We can't create a culture of freedom and innovation, but we can build a network which fosters its growth", i.e. you can only try to nourish ESF by creating secondary tools (e.g. VCs, entrepreneurial networks), you can't increase it directly.

So, I divide countries (again, simplifying things, of course) as follows:

|------------|--------------|---------------|
| | High ESF | Low ESF |
|------------|--------------|---------------|
| High SROF | US | Most of Europe|
|------------|--------------|---------------|
| Low SROF | India, China | |
|------------|--------------|---------------|

The US is in the best spot, having both factors high; however, its SROF is just at the Goldilocks point, neither too high as to stifle innovation or too low to lead to chaotic behavior. This is achieved by the existence of very low SROF cultures, i.e. SV in an otherwise high SROF country. Countries like India and China (also Russia, Turkey, Brazil, etc.) have a high ESH but low SROF, which makes things chaotic and slows down the set up reliable entrepreneurial institutions. As mentioned in most of the comments here, Europe has to get over it culturally induced low ESF. Again, I think, the reason is cultural: Most European society historically had rigid class-based societal structures (e.g. even today people are generally classified by their vocation) so there may be an instinctive aversion to people who want to shake the structure and cannot be classified easily. This, of course, doesn't explain the success of India, with its rigid caste structure. I think the very strong jugaad culture (http://en.wikipedia.org/wiki/Jugaad), which is also prevalent in countries like Russia and Turkey may explain this. As raganwald emphasizes, "At either end of the educational spectrum, there lies a hacker class".

Who is in the bottom right cell? An example would be most Arab countries, with dismal levels of ESF (not needed due to oil money).