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Entrepreneurship and the Business Environment in Africa: An Application to Ethiopia

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  • Brixiova, Zuzana

    ()
    (African Development Bank)

  • Ncube, Mthuli

    ()
    (African Development Bank)

Abstract

Since mid-2000s, Ethiopia has been one of the fastest growing countries in the world. However, productive entrepreneurship in high-value added activities has made limited contributions to this growth, in part because of a weak business environment. Moreover, the low-productive firms in the informal sector still account for a large share of employment. Reflecting these facts, this paper presents a model of costly entrepreneurial start-ups in an economy with a large informal sector and rigid business environment where an equilibrium outcome can be a low-skill, low-productivity trap. By fostering productive start-ups and skilled employment, creation of an enabling business environment could help move the Ethiopian economy into high-productivity equilibrium.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7553.

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Length: 23 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7553

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Keywords: entrepreneurship; SME start-ups; low productivity trap; multiple equilibria; Africa;

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References

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  1. Baliamoune-Lutz, Mina, 2009. "Entrepreneurship and Reforms in Developing Countries," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Faggio, Giulia & Konings, Jozef, 2001. "Job Creation, Job Destruction and Employment Growth in Transition Countries in the 90's," IZA Discussion Papers 242, Institute for the Study of Labor (IZA).
  3. Pinheiro-Alves, Ricardo & Zambujal-Oliveira, João, 2012. "The Ease of Doing Business Index as a tool for investment location decisions," Economics Letters, Elsevier, vol. 117(1), pages 66-70.
  4. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-90, September.
  5. Zuzana Brixiova, 2013. "Modeling productive entrepreneurship in developing countries," Small Business Economics, Springer, vol. 41(1), pages 183-194, June.
  6. Mthuli Ncube, 2005. "Economic Growth, Entrepreneurship and the Business Environment in Africa," Working Papers 30, Economic Research Southern Africa.
  7. Douglas Gollin, 2001. "Nobody's Business but My Own: Self Employment and Small Enterprise in Economic Development," Center for Development Economics 172, Department of Economics, Williams College.
  8. Mitra, Pradeep & Muravyev, Alexander & Schaffer, Mark E., 2009. "Convergence in institutions and market outcomes: cross-country and time-series evidence from the business environment and enterprise performance surveys in transition economies," Policy Research Working Paper Series 4819, The World Bank.
  9. Brixiová, Zuzana & Égert, Balázs, 2012. "Business Environment, Start-Ups, And Productivity During Transition," Macroeconomic Dynamics, Cambridge University Press, vol. 16(S2), pages 213-231, September.
  10. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  11. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
  12. Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2006. "Entry regulation as a barrier to entrepreneurship," Journal of Financial Economics, Elsevier, vol. 82(3), pages 591-629, December.
  13. Mulu Gebreeyesus, 2008. "Firm turnover and productivity differentials in Ethiopian manufacturing," Journal of Productivity Analysis, Springer, vol. 29(2), pages 113-129, April.
  14. World Bank, 2009. "Ethiopia - Toward the Competitive Frontier : Strategies for Improving Ethiopia’s Investment Climate," World Bank Other Operational Studies 3076, The World Bank.
  15. Dethier, Jean-Jacques & Hirn, Maximilian & Straub, Stephane, 2008. "Explaining Enterprise Performance in Developing Countries with Business Climate Survey Data," Policy Research Working Paper Series 4792, The World Bank.
  16. Tetsushi Sonobe & John E. Akoten & Keijiro Otsuka, 2009. "An Exploration into the Successful Development of the Leather-Shoe Industry in Ethiopia," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 719-736, November.
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