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Effects of financial reform on business entry in sub‐Saharan African countries: Do resource dependence and institutional quality matter?
Author(s) -
Ogbeide Frank Iyekoretin,
Adeboje Oluwafemi Mathew
Publication year - 2020
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12427
Subject(s) - interest rate , liberalization , entrepreneurship , economics , gross domestic product , natural resource , quality (philosophy) , monetary economics , real interest rate , financial system , international economics , macroeconomics , business , finance , market economy , ecology , philosophy , epistemology , biology
This paper examined the effects of the financial liberalization strategy adopted on the African continent over 25 years ago in promoting new business entry using data from 22 sub‐Saharan African (SSA) countries in 2006–2017. Results from the dynamic generalized method of moments models show that: financial development via a policy of financial liberalization does not have a uniform effect on entrepreneurship; the interest rate gap significantly undermines the entrance of new firms; the ratio of broad money/gross domestic product (GDP) was positive and statistically significant while real interest rate had mixed findings; interactive effects of interest rate spread and real interest rate with regulatory quality was negative; the interaction of interest rate spread and real interest rate with natural resources confirms its destabilizing effect, although there was evidence suggesting that natural resources do not directly undermine entrepreneurship growth. Other results show real GDP and private credit have a significantly positive effect, and the cost of getting electricity significantly undermines entrepreneurship. The study calls for the need to deepen the financial sector though targeted reforms across SSA countries to reap its growth‐inducing effects on economic outcomes, while promoting institutional quality and efficient use of natural resources to achieve a non‐declining infusion of SMEs on the continent.