Financial development and entrepreneurial dynamics: a quantile-based analysis of Sub-Saharan Africa

This study examines the heterogeneous effects of financial development on entrepreneurship in sub-Saharan Africa (SSA). It aims to explore how financial development impacts entrepreneurial activity at different levels of the distribution, with a particular focus on identifying varying effects across lower, median, and upper quantiles. The study employs the Method of Moments Quantile Regression (MMQR) to analyze data sourced from the World Bank’s World Development Indicators and Doing Business databases. The study tests the hypotheses that credit availability and broad money (a proxy for liquidity) exerts stronger effects at the lower and upper quantiles. The results demonstrate that financial development influences entrepreneurship primarily through location effects, with scale effects remaining insignificant. Credit availability has a positive and progressively stronger effect on entrepreneurship across various quantiles. Similarly, broad money exerts a positive and significant effect at various quantiles underscoring the role of both credit and liquidity in stimulating entrepreneurship, while highlighting that their effects are uniform in raising the overall level of entrepreneurial activity without significantly altering its dispersion. The evidence suggests that policies should strengthen both credit markets and liquidity channels, but with differentiated strategies. Expanding formal credit is particularly critical for SMEs and growth-oriented firms, while liquidity-enhancing innovations such as mobile money can support necessity-driven entrepreneurs at the lower quantiles. The study moves beyond mean-based approaches to show how finance influences entrepreneurial activity across the distribution, thereby offering a more nuanced perspective for researchers and policymakers.