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Does economic freedom affect entrepreneurship? Insights from Africa

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  • Folorunsho M Ajide

Abstract

Purpose - Literature suggests that entrepreneurship can serve as a veritable tool for providing decent employment and improving economic prosperity. Therefore, the objective of this study is to examine the impact of economic freedom on entrepreneurship in Africa.Design/methodology/approach - The study employs data of 18 African countries covering a period of 2007-2018. The analysis is based on the following techniques: Panel-Corrected Standard Errors (PCSE), generalized method of moments, Hausman–Taylor IV estimator and Driscoll-Kraay standard errors.Findings - Finding based on Panel-Corrected Standard Errors (PCSE) technique reveals that economic freedom and its dimensions improve the level of entrepreneurship in Africa. This finding is robust to other alternative estimation techniques. Secured property right, relaxed tax burden, monetary freedom, trade freedom, freedom from corruption, investment freedom, financial freedom, business freedom and labor freedom have positive impact on African entrepreneurship.Practical implications - The study, hence, suggests that policy should be implemented to maximize the level of economic and fundamental freedom of citizens to encourage indigenous entrepreneurs in Africa. Quality of infrastructure should be improved as well as simplification of firms’ registration procedures. African government also needs to build effective and efficient institutional framework to maintain government integrity in Africa.Originality/value - The position of African countries in the nexus between economic freedom and entrepreneurship is rarely discussed in the literature. Hence, this study contributes in this respect and showcases how economic freedom influence the decision to engage in entrepreneurial venture in African perspectives

Suggested Citation

  • Folorunsho M Ajide, 2021. "Does economic freedom affect entrepreneurship? Insights from Africa," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 13(2), pages 157-167.
    • Handle: RePEc:uii:journl:v:13:y:2021:i:2:p:157-167:id:20095
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    References listed on IDEAS

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    1. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-1398, November.
    2. Sobel, Russell S., 2008. "Testing Baumol: Institutional quality and the productivity of entrepreneurship," Journal of Business Venturing, Elsevier, vol. 23(6), pages 641-655, November.
    3. Jacob Lihn & Christian Bjørnskov, 2017. "Economic freedom and veto players jointly affect entrepreneurship," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing Limited, vol. 6(3), pages 340-358, November.
    4. Abdulkareem Alhassan & Abdulhakeem Abdullahi Kilishi, 2019. "Weak economic institutions in Africa: a destiny or design?," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 46(7), pages 904-919, July.
    5. Jonathan Munemo, 2018. "Entrepreneurial Success in Africa: How Relevant Are Foreign Direct Investment and Financial Development?," African Development Review, African Development Bank, vol. 30(4), pages 372-385, December.
    6. Mohammed Abdullah & Murshed Chowdhury, 2020. "Foreign Direct Investment and Total Factor Productivity: Any Nexus?," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 14(2), pages 164-190, May.
    7. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
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    Cited by:

    1. Johan, Sofia & Sakariyahu, Rilwan & Lawal, Rodiat & Paterson, Audrey & Ajide, Folorunsho M., 2023. "Does energy poverty moderate the impact of economic freedom on the quality of life in Africa? A panel quantile via moment approach," Finance Research Letters, Elsevier, vol. 58(PC).

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    More about this item

    Keywords

    economic institutions; startups; Hausman-Taylor IV estimator; Africa;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • P14 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Property Rights

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