Patterns of business creation, survival and growth evidence from africa
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Patterns of business creation, survival and growth evidence from africa
Public Disclosure AuthorizedPublic Disclosure AuthorizedPolicy Research Working Paper 5828Patterns of Business Creation, Survival and GrowthEvidence f Patterns of business creation, survival and growth evidence from africa from AfricaLeora KlapperChristine RichmondThe World BankDevelopment Research GroupFinance and Private Sector Development Team40817Patterns of Business Creation. Survival and Growth: Evidence from Africa’Leora Klapper"Clmstine Richmond’"JEL Classification-. G18. G38. L51. M13Keywords. Business Incorp Patterns of business creation, survival and growth evidence from africa oration; Net Employment: Regulatory Barners: Economic GrowthWe aie giatefi.ll to Francois Bouiguignon foi providing US the data and Daniel Dia->. SebaPatterns of business creation, survival and growth evidence from africa
stian Edwards. Phil English. Vesela Grozeva. Ed Learner. Phil Kim. Javier Miranda. Nico Voigtlander. Mark Wright. Romain Wacziarg. and seminar particiPublic Disclosure AuthorizedPublic Disclosure AuthorizedPolicy Research Working Paper 5828Patterns of Business Creation, Survival and GrowthEvidence f Patterns of business creation, survival and growth evidence from africa dation Busmess Creation Symposium. 2009 Northeast Universities Development Consortium. World Bank-Kauffman Foundation Conference on Entrepreneurship and Growth. PACDEV 2010. 5th IZA World Bank Conference on Employment and Development. UCLA, and ICN Nancy for helpfill comments. We also thank Markus F Patterns of business creation, survival and growth evidence from africa rdlich and two anonymous referees for excellent comments. Financial assistance is gratefully acknowledged from UCLA CIBER by Christine Richmond and frPatterns of business creation, survival and growth evidence from africa
om the Knowledge for Change (KCP) program by Leora Klappei. The opinions expressed do not necessarily represent the views of the World Bank, its ExecuPublic Disclosure AuthorizedPublic Disclosure AuthorizedPolicy Research Working Paper 5828Patterns of Business Creation, Survival and GrowthEvidence f Patterns of business creation, survival and growth evidence from africa ashington. DC 20433. Tel: +1 202.473.8738; Email: lklappcr@worldbank.org’" International Monetary Fluid. 1900 Pennsylvania Avenue N.W.. Washington. DC 20431. Tel: +1.202.623.4864; Email: crichmond@imf. org1. IntroductionFinn entry and exit Schumpeterian "creative destruction" is critical for the con Patterns of business creation, survival and growth evidence from africa tinued dynamism of the modern economy. Though evidence has linked entrepreneurship and economic growth in developed countrieswe have scarce evidence tPatterns of business creation, survival and growth evidence from africa
hat such a relationship exists in developing countries. For instance, to what extent does formal sector entrepreneurship contribute to job creation inPublic Disclosure AuthorizedPublic Disclosure AuthorizedPolicy Research Working Paper 5828Patterns of Business Creation, Survival and GrowthEvidence f Patterns of business creation, survival and growth evidence from africa er, we examine job creation and destruction. al both new and mcumbcnl firms. Ill Cole d'hoire. ranked 169 of 181 countries ill the 2011 Doing Business "Base of Doing Business" ranking (where 1 indicates the most favorable business enviroinnent) (World Bank. 2010a).We use a new and unique database th Patterns of business creation, survival and growth evidence from africa at includes the complete census of registered firms 111 Cote d'lvone from 1976 through 1997 to answer these questions." This includes data collected aPatterns of business creation, survival and growth evidence from africa
t the time of registration (ownership and sector) as well as aimual reporting of total employment. Unlike comparable studies tliat rely on survey dataPublic Disclosure AuthorizedPublic Disclosure AuthorizedPolicy Research Working Paper 5828Patterns of Business Creation, Survival and GrowthEvidence f Patterns of business creation, survival and growth evidence from africa raction, and survival at incumbent firms Moreover, since we use a census of formal sector films that extends beyond the manufacturing sector, we can analy ze the impact of macroeconomic and other shocks on sector distributions.Fust, we examine business dynamics in Cole d'Ivoire. We decompose trends Patterns of business creation, survival and growth evidence from africa in job creation and gr ow th into entry of new films and expansion of incumbent films, and job destruction into exit and contraction. We also examinePatterns of business creation, survival and growth evidence from africa
the distribution of firms by size, sector, and ownership. We find that job creation by new firms is quite high al 8% on average, but the number of jobPublic Disclosure AuthorizedPublic Disclosure AuthorizedPolicy Research Working Paper 5828Patterns of Business Creation, Survival and GrowthEvidence f Patterns of business creation, survival and growth evidence from africa s, and firm survival. We find that, on average, a 1% increase in GDP growth lowers rhe likelihood of exit by 1.7%, while trade liberalization and fiscal adjustment episodes raised the overall likelihood of exit but attenuated the probability of exit for small and medium sized firms relative to large Patterns of business creation, survival and growth evidence from africa firms. AFor example, see Haltiwanger el al. (2009a); Klappei el al. (2006); Djankov et al. (2002).■ Regulatory changes related to the modernization oPatterns of business creation, survival and growth evidence from africa
f the Registrar of Companies in 199S prevent us from extending the time series.2caveat to our survival results, however, is the reliance on time seriePublic Disclosure AuthorizedPublic Disclosure AuthorizedPolicy Research Working Paper 5828Patterns of Business Creation, Survival and GrowthEvidence f Patterns of business creation, survival and growth evidence from africa velopment strategies. In order for the private sector to act as an 'engine of growth* and advance the development process, it is necessary for firms to survive and grow. It is also important for policy makers to understand and consider the impact of government policies on private sector survival and Patterns of business creation, survival and growth evidence from africa growth.An important caveat is that our analysis covers all formally registered firms, but excludes firms that operate informally, even though the infPatterns of business creation, survival and growth evidence from africa
ormal economy encompasses an estimated 72% of jobs in Sub-Saharan Africa (OECD. 2009).' Yet it remains important to understand job dynamics among formPublic Disclosure AuthorizedPublic Disclosure AuthorizedPolicy Research Working Paper 5828Patterns of Business Creation, Survival and GrowthEvidence f Patterns of business creation, survival and growth evidence from africa rld Bank Enterprise Surveys of informal linns in three African countries suggests that most infonnal firms have less than 2 employees and unlikely to contribute to job creation. For instance. 46% of mfonnal linns 111 Cote d'Ivoire (as compar ed to 39% in Madagascar and 31% in Mauritius) Stan not bec Patterns of business creation, survival and growth evidence from africa ause the owner sees a good business opportunity, but because the (largest) owner could not find alternative employment opportunities ("unwilling” entrPatterns of business creation, survival and growth evidence from africa
epreneurs). Furthermore. 81% of firms in Cote d'Ivoire (as compared to 72% in Madagascar and 49% in Mauritius) operate within household premises and fPublic Disclosure AuthorizedPublic Disclosure AuthorizedPolicy Research Working Paper 5828Patterns of Business Creation, Survival and GrowthEvidence f Patterns of business creation, survival and growth evidence from africa an in large informal firms, which in turn have higher productivity than small informal firms (.Amin. 2009) The literature also highlights other potential advantages of formal sector participation for large firms, including police and judicial protection (and less minerability to corruption and the d Patterns of business creation, survival and growth evidence from africa emand for bribes), access to formal credit institutions, the ability to use formal labor contracts, and greater access to foreign markets (SclureiderPatterns of business creation, survival and growth evidence from africa
and Enste. 2000). Finns that choose to remain informal may be unable to realize their full growth potential. Therefore, “high-growth” entrepreneurshipPublic Disclosure AuthorizedPublic Disclosure AuthorizedPolicy Research Working Paper 5828Patterns of Business Creation, Survival and GrowthEvidence f Patterns of business creation, survival and growth evidence from africa Bourguignon. 1996)4 The Mauritius statistics are statistically different from those of Cote d'Ivoire at the 1% level; the Madagascar statistics are not significantly different from those of Cote d’Ivoire even at the 10°o level.3macroeconomic growth, is most likely to happen through formally registe Patterns of business creation, survival and growth evidence from africa red firms. These weaknesses in the informal sector suggest that understanding the drivers of formal firm entry and survival are key to promoting econoPatterns of business creation, survival and growth evidence from africa
mic growth and employmentThe paper proceeds as follows. Section 2 reviews previous literature related to firm dynamics. Section 3 reviews the relevantPublic Disclosure AuthorizedPublic Disclosure AuthorizedPolicy Research Working Paper 5828Patterns of Business Creation, Survival and GrowthEvidence f Patterns of business creation, survival and growth evidence from africa al test methodology, and results. Section 6 concludes.Public Disclosure AuthorizedPublic Disclosure AuthorizedPolicy Research Working Paper 5828Patterns of Business Creation, Survival and GrowthEvidence fGọi ngay
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