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

23 Pages Posted: 23 Aug 2013

See all articles by Zuzana Brixiova

Zuzana Brixiova

International Monetary Fund (IMF) - European Department; African Development Bank

Mthuli Ncube

BARBICAN Asset Management; London School of Economics & Political Science (LSE) - Financial Markets Group

Abstract

Since mid-2000s, Ethiopia has been one of the fastest growing countries in the world. However, productive entrepreneurship in high-value added activities has made limited contributions to this growth, in part because of a weak business environment. Moreover, the low-productive firms in the informal sector still account for a large share of employment. Reflecting these facts, this paper presents a model of costly entrepreneurial start-ups in an economy with a large informal sector and rigid business environment where an equilibrium outcome can be a low-skill, low-productivity trap. By fostering productive start-ups and skilled employment, creation of an enabling business environment could help move the Ethiopian economy into high-productivity equilibrium.

Keywords: entrepreneurship, SME start-ups, low productivity trap, multiple equilibria, Africa

JEL Classification: L26, J24, J48, O17

Suggested Citation

Brixiova, Zuzana and Ncube, Mthuli, Entrepreneurship and the Business Environment in Africa: An Application to Ethiopia. IZA Discussion Paper No. 7553, Available at SSRN: https://ssrn.com/abstract=2314848 or http://dx.doi.org/10.2139/ssrn.2314848

Zuzana Brixiova (Contact Author)

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7000 (Phone)
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African Development Bank ( email )

Rue Joseph Anoma
01 BP 1387
Ivory Coast (Cote D'ivoire)

Mthuli Ncube

BARBICAN Asset Management ( email )

London School of Economics & Political Science (LSE) - Financial Markets Group

Houghton Street
London WC2A 2AE
United Kingdom

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