IDEAS home Printed from https://ideas.repec.org/p/ldr/wpaper/146.html
   My bibliography  Save this paper

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

Author

Listed:
  • Zuzana Brixiová

    (African Development Bank, IZA and Research Affi liate, SALDRU, University of Cape Town)

  • Mthuli Ncube

    (University of Oxford)

Abstract

Policymakers in developing countries have recognized that productive entrepreneurship can help eliminate extreme poverty. This paper develops a search model of costly entrepreneurial start-ups under a constraining business environment and skill gaps, where one of the equilibrium outcomes is a low-productivity trap. The model reflects stylized facts from the urban labor markets in low income countries such as Ethiopia where low rates of productive entrepreneurship coexist with high output growth in some sectors. Creating an enabling business environment could help move the economy into the high-productivity equilibrium if the regulatory improvements are substantial and other bottlenecks such as skill gaps addressed. We test the role of the business environment in entrepreneurial sales on data from a recent World Bank survey of enterprises in Addis Ababa.

Suggested Citation

  • Zuzana Brixiová & Mthuli Ncube, 2015. "Entrepreneurship and the Business Environment in Africa: An Application to Ethiopia," SALDRU Working Papers 146, Southern Africa Labour and Development Research Unit, University of Cape Town.
    • Handle: RePEc:ldr:wpaper:146
    as

    Download full text from publisher

    File URL: https://opensaldru.uct.ac.za/bitstream/handle/11090/779/2015_146_Saldruwp.pdf?sequence=1
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. repec:cep:stieop:43 is not listed on IDEAS
    2. Ayal Kimhi, 2010. "Entrepreneurship and income inequality in southern Ethiopia," Small Business Economics, Springer, vol. 34(1), pages 81-91, January.
    3. 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.
    4. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
    5. 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.
    6. 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.
    7. World Bank, 2009. "Ethiopia - Toward the Competitive Frontier : Strategies for Improving Ethiopia’s Investment Climate," World Bank Publications - Reports 3076, The World Bank Group.
    8. Janelle Plummer, 2012. "Diagnosing Corruption in Ethiopia : Perceptions, Realities, and the Way Forward for Key Sectors," World Bank Publications - Books, The World Bank Group, number 13091, April.
    9. Lopez-Garcia, Paloma, 2006. "Business environment and labor market outcomes in Europe and Central Asia countries," Policy Research Working Paper Series 3885, The World Bank.
    10. Mina Baliamoune-Lutz, 2009. "Entrepreneurship and Reforms in Developing Countries," WIDER Working Paper Series RP2009-04, World Institute for Development Economic Research (UNU-WIDER).
    11. Oriana Bandiera & Robin Burgess & Narayan Das & Selim Gulesci & Imran Rasul & Munshi Sulaiman, 2013. "Can Basic Entrepreneurship Transform the Economic Lives of the Poor?," STICERD - Economic Organisation and Public Policy Discussion Papers Series 043, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    12. Mulu Gebreeyesus, 2008. "Firm turnover and productivity differentials in Ethiopian manufacturing," Journal of Productivity Analysis, Springer, vol. 29(2), pages 113-129, April.
    13. 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.
    14. International Finance Corporation & World Bank, 2013. "Doing Business 2013 : Smarter Regulations for Small and Medium-Size Enterprises [Regulaciones inteligentes para las pequeñas y medianas empresas : resumen ejecutivo (Vol. 2)]," World Bank Publications - Books, The World Bank Group, number 11857, April.
    15. Bruton, Garry D. & Ketchen, David J. & Ireland, R. Duane, 2013. "Entrepreneurship as a solution to poverty," Journal of Business Venturing, Elsevier, vol. 28(6), pages 683-689.
    16. Alan Gelb & Taye Mengistae & Vijaya Ramachandran & Manju Kedia Shah, 2009. "To Formalize or Not to Formalize? Comparisons of Microenterprise Data from Southern and East Africa," Working Papers 175, Center for Global Development.
    17. Jean-Jacques Dethier & Maximilian Hirn & Stéphane Straub, 2011. "Explaining Enterprise Performance in Developing Countries with Business Climate Survey Data," The World Bank Research Observer, World Bank, vol. 26(2), pages 258-309, August.
    18. World Bank, 2007. "Ethiopia - Urban Labor Markets : Challenges and Prospects, Volume 2. Background Paper," World Bank Publications - Reports 7994, The World Bank Group.
    19. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-690, September.
    20. Gollin, Douglas, 2008. "Nobody's business but my own: Self-employment and small enterprise in economic development," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 219-233, March.
    21. Dale T. Mortensen & Christopher A. Pissarides, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 397-415.
    22. Paloma Lopez-Garcia, 2009. "Business Environment and Labor Market Outcomes in European and Central Asian Countries," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 12(4), pages 35-67, Spring.
    23. Zuzana Brixiova, 2013. "Modeling productive entrepreneurship in developing countries," Small Business Economics, Springer, vol. 41(1), pages 183-194, June.
    24. Faggio, Giulia & Konings, Jozef, 2003. "Job creation, job destruction and employment growth in transition countries in the 90s," Economic Systems, Elsevier, vol. 27(2), pages 129-154, June.
    25. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    26. 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.
    27. World Bank, 2013. "Second Ethiopia Economic Update : Laying the Foundation for Achieving Middle Income Status," World Bank Publications - Reports 16740, The World Bank Group.
    28. Dollar, David & Hallward-Driemeier, Mary & Mengistae, Taye, 2005. "Investment Climate and Firm Performance in Developing Economies," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 1-31, October.
    29. International Monetary Fund, 2012. "The Federal Democratic Republic of Ethiopia: Staff Report for the 2012 Article IV Consultation," IMF Staff Country Reports 2012/287, International Monetary Fund.
    30. World Bank & International Finance Corporation, "undated". "Doing Business in Italy 2013 : Smarter Regulations for Small and Medium-Size Enterprises," World Bank Publications - Reports 13331, The World Bank Group.
    31. repec:rza:wpaper:30 is not listed on IDEAS
    32. Government of the United Republic of Tanzania & World Bank, 2002. "Tanzania at the Turn of the Century : Background Papers and Statistics," World Bank Publications - Books, The World Bank Group, number 14054, April.
    33. Martins, Pedro, 2014. "Structural change in Ethiopia : an employment perspective," Policy Research Working Paper Series 6749, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Brixiová, Zuzana & Ncube, Mthuli & Bicaba, Zorobabel, 2015. "Skills and Youth Entrepreneurship in Africa: Analysis with Evidence from Swaziland," World Development, Elsevier, vol. 67(C), pages 11-26.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brixiová, Zuzana & Ncube, Mthuli & Bicaba, Zorobabel, 2015. "Skills and Youth Entrepreneurship in Africa: Analysis with Evidence from Swaziland," World Development, Elsevier, vol. 67(C), pages 11-26.
    2. Zuzana Brixiova & Balázs Égert, 2010. "Modeling Institutions, Start-ups and Productivity during Transition," OECD Economics Department Working Papers 773, OECD Publishing.
    3. Brixiova, Zuzana & Égert, Balázs, 2017. "Entrepreneurship, institutions and skills in low-income countries," Economic Modelling, Elsevier, vol. 67(C), pages 381-391.
    4. Andrew E. Hansen-Addy & Davide M. Parrilli & Ishmael Tingbani, 2024. "The impact of trade facilitation on African SMEs’ performance," Small Business Economics, Springer, vol. 62(1), pages 105-131, January.
    5. Luis Medrano-Adán & Vicente Salas-Fumás & J. Sanchez-Asin, 2015. "Heterogeneous entrepreneurs from occupational choices in economies with minimum wages," Small Business Economics, Springer, vol. 44(3), pages 597-619, March.
    6. Harrison, Ann E. & Lin, Justin Yifu & Xu, Lixin Colin, 2014. "Explaining Africa’s (Dis)advantage," World Development, Elsevier, vol. 63(C), pages 59-77.
    7. Krolikowski, Pawel M. & McCallum, Andrew H., 2021. "Goods-market frictions and international trade," Journal of International Economics, Elsevier, vol. 129(C).
    8. Tesfatsion, Leigh, 1998. "Ex Ante Capacity Effects in Evolutionary Labor Markets with Adaptive Search," ISU General Staff Papers 199810010700001046, Iowa State University, Department of Economics.
    9. Chen, Been-Lon & Mo, Jie-Ping & Wang, Ping, 2002. "Market frictions, technology adoption and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 26(11), pages 1927-1954, September.
    10. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
    11. Bodenstein, Martin & Kamber, Güneş & Thoenissen, Christoph, 2018. "Commodity prices and labour market dynamics in small open economies," Journal of International Economics, Elsevier, vol. 115(C), pages 170-184.
    12. Pissarides, Christopher & Mortensen, Dale T., 2001. "Taxes, Subsidies and Equilibrium Labour Market Outcomes," CEPR Discussion Papers 2989, C.E.P.R. Discussion Papers.
    13. James M. Malcomson & Sophocles Mavroeidis, 2007. "Matching Frictions, Efficiency Wages, and Unemployment in the USA and the UK," Working Papers 2007-02, Brown University, Department of Economics.
    14. Schulz, Matthias & Urbig, Diemo & Procher, Vivien, 2016. "Hybrid entrepreneurship and public policy: The case of firm entry deregulation," Journal of Business Venturing, Elsevier, vol. 31(3), pages 272-286.
    15. Golosov, Mikhail & Menzio, Guido, 2020. "Agency business cycles," Theoretical Economics, Econometric Society, vol. 15(1), January.
    16. Eliane Badaoui & Olivier Bargain & Prudence Magejo & Eric Strobl & Frank Walsh, 2023. "A Search Model with Self-Employment and Heterogeneity in Managerial Ability," EconomiX Working Papers 2023-9, University of Paris Nanterre, EconomiX.
    17. Giuseppe Moscarini & Fabien Postel-Vinay, 2016. "Wage Posting and Business Cycles: a Quantitative Exploration," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 135-160, January.
    18. Diao, Xinshen & McMillan, Margaret, 2018. "Toward an Understanding of Economic Growth in Africa: A Reinterpretation of the Lewis Model," World Development, Elsevier, vol. 109(C), pages 511-522.
    19. Bradley, Jake & Ruggieri, Alessandro & Spencer, Adam Hal, 2021. "Twin Peaks: Covid-19 and the labor market," European Economic Review, Elsevier, vol. 138(C).
    20. Petrosky-Nadeau, Nicolas & Wasmer, Etienne, 2015. "Macroeconomic dynamics in a model of goods, labor, and credit market frictions," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 97-113.

    More about this item

    Keywords

    Model of start-ups; productivity; multiple equilibria; low income countries; Africa;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ldr:wpaper:146. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alison Siljeur (email available below). General contact details of provider: https://edirc.repec.org/data/sauctza.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.