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Unlocking Productive Entrepreneurship in Ethiopia: Which Incentives Matter?

Author

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  • Zuzana Brixiova
  • Emerta Asaminew

Abstract

Twenty years after the launch of market reforms, productive entrepreneurship and vibrant small and medium-sized enterprises (SMEs) in Ethiopia remain limited, the recent growth acceleration notwithstanding. This paper develops a model of entrepreneurial start ups in an economy with frictions in the product and labor markets and a large informal sector, which characterize the Ethiopian institutional landscape. It then examines several mitigating policies that could improve the suboptimal outcomes. The main findings are that search subsidies would be more effective in encouraging entrepreneurial start ups than wage subsidies, although fewer entrepreneurs may choose to operate in the formal sector than under the latter. Regarding the reform agenda,priority should be put on removing rigidities and establishing property rights. To be effective,both types of subsidies should have a time limit and be phased out with reforms of the business environment, strengthened property rights, and improved labor markets.

Suggested Citation

  • Zuzana Brixiova & Emerta Asaminew, 2010. "Unlocking Productive Entrepreneurship in Ethiopia: Which Incentives Matter?," William Davidson Institute Working Papers Series wp1000, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2010-1000
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    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/133014/1/wp1000.pdf
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    References listed on IDEAS

    as
    1. World Bank, 2009. "Ethiopia - Toward the Competitive Frontier : Strategies for Improving Ethiopia’s Investment Climate," World Bank Publications - Reports 3076, The World Bank Group.
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    Citations

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    Cited by:

    1. Brixiova, Zuzana & Égert, Balázs, 2017. "Entrepreneurship, institutions and skills in low-income countries," Economic Modelling, Elsevier, vol. 67(C), pages 381-391.

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    More about this item

    Keywords

    Model of skills and start ups; labor markets; frictions; informal sector; 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

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