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Indigenous ethnicity and entrepreneurial success in Africa : some evidence from Ethiopia

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  • Mengistae, Taye

Abstract

Researchers have recently been asking why Asian and European minorities in Africa seem to be more successful in business than are people of indigenous ethnicity. The author draws attention to the significant disparity in business ownership and performance that seems to exist among African ethnic groups as well. After analyzing a random selection of small to medium-size manufacturers in Ethiopia, he finds that establishments owned by an indigenous minority ethnic group, the Gurage, typically perform better than those owned by other (major or minority) groups. Other things being equal, Gurage-owned businesses are normally large, partly because they are bigger as start-ups and partly because they grow faster. And yet Gurage business owners are the least educated ethnic group in the sample. Because the size and growth rate of a business also increases with the entrepreneur's education, the performance of other businesses would have been even worse if their owners hadn't been better educated than the Gurage. Indeed, dropping education variables from the size determination equation drastically reduces the estimated advantage of Gurage-run businesses. This suggests that the observed effect of ethnicity could be indicative of intergroup differences in unmeasured ability. More important, it means that whether or not the effect will persist in the long run will depend on the trend in interethnic differences in investment in education.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2534.

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Date of creation: 31 Jan 2001
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Handle: RePEc:wbk:wbrwps:2534

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Keywords: Health Monitoring&Evaluation; Science Education; Scientific Research&Science Parks; Educational Sciences; Achieving Shared Growth;

References

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  1. Raturi, Mayank & Swamy, Anand V, 1999. "Explaining Ethnic Differentials in Credit Market Outcomes in Zimbabwe," Economic Development and Cultural Change, University of Chicago Press, vol. 47(3), pages 585-604, April.
  2. Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-59, November.
  3. Bronwyn H. Hall, 1986. "The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector," NBER Working Papers 1965, National Bureau of Economic Research, Inc.
  4. Fafchamps, Marcel, 2000. "Ethnicity and credit in African manufacturing," Journal of Development Economics, Elsevier, vol. 61(1), pages 205-235, February.
  5. Vijaya Ramachandran & Manju Kedia Shah, 1999. "Minority entrepreneurs and firm performance in sub-Saharan Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 36(2), pages 71-87.
  6. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
  7. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-74, August.
  8. Bernard F. Lentz & David N. Laband, 1990. "Entrepreneurial Success and Occupational Inheritance among Proprietors," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 563-79, August.
  9. Martin, John P & Page, John M, Jr, 1983. "The Impact of Subsidies on X-Efficiency in LDC Industry: Theory and an Empirical Test," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 608-17, November.
  10. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  11. Robert W. Fairlie & Bruce D. Meyer, 1996. "Ethnic and Racial Self-Employment Differences and Possible Explanations," Journal of Human Resources, University of Wisconsin Press, vol. 31(4), pages 757-793.
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Cited by:
  1. Girum Abebe & Tetsushi Sonobe, 2012. "Management Practices, Self-Selection into Management Training Participation, and Training Effects in the Garment Industry in Ethiopia," GRIPS Discussion Papers 11-23, National Graduate Institute for Policy Studies.
  2. Vivarelli, Marco, 2012. "Entrepreneurship in Advanced and Developing Countries: A Microeconomic Perspective," IZA Discussion Papers 6513, Institute for the Study of Labor (IZA).
  3. Micheline Goedhuys & Leo Sleuwaegen, 2010. "High-growth entrepreneurial firms in Africa: a quantile regression approach," Small Business Economics, Springer, vol. 34(1), pages 31-51, January.
  4. World Bank, 2005. "The Cost of Doing Business in Africa : Evidence from the World Bank’s Investment Climate Data," World Bank Other Operational Studies 8769, The World Bank.
  5. Vivarelli, Marco, 2012. "Drivers of entrepreneurship and post-entry performance : microeconomic evidence from advanced and developing countries," Policy Research Working Paper Series 6245, The World Bank.

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