Theoretical and Applied Economics (Dec 2023)
The effects of financial inclusion on entrepreneurship in SSA and the role of institutions
Abstract
One of the major development problems facing sub-Saharan Africa (SSA) is the high rate of youth unemployment and the low activity rate of the working age population. Among the many solutions mentioned to combat this scourge, the entrepreneurial dynamic occupies a prominent place. This explains why the analysis of potential forces influencing entrepreneurship has received a lot of attention from researchers in the economic literature as well. In this sense, an interesting literature indicates that access to financial services in developing countries could play a key role in business creation. However, to date, there has been relatively little attention in the empirical literature on the role of financial inclusion in entrepreneurial dynamics and even less attention to the institutional environment of the countries in question in this relationship. This study seeks to fill this gap by examining the link between financial inclusion, institutional quality and entrepreneurship in a sample of 25 SSA countries over the 2006-2018 period. Using Generalized Least Squares (GLS), Two-Stage least squares (2SLS) and IV-GMM methods, the results reveal that financial inclusion has a positive effect on entrepreneurial dynamics and that institutional quality amplifies entrepreneurial dynamics both directly and indirectly through its impact on financial inclusion. Therefore, institutional quality and financial inclusion are complements in enhancing entrepreneurship in Sub-Saharan Africa Countries. Therefore, we posit policy implications based on the reported correlations and associations, tying financial inclusion and entrepreneurship to strengthened institutional environment.
