Is Entrepreneurship a Significant Determinant of Financial Development?

Aims: The paper explores whether entrepreneurship is a significant determinant of financial development in 12 African countries.

Study Design: Cross-sectional Study

Place and Duration of Study: The study is in 12 African countries between 2004-2011

Methodology: Total domestic credit provided to the private sector by the banking sector as a share of GDP and the number of new business start-ups registered in each fiscal year are used to measure financial development and entrepreneurship respectively. We use data (2004-2011) from 12 African countries(Ghana; Algeria; Botswana; Egypt; Gabon; Lesotho; Mauritius; Senegal; South Africa; Togo; Zambia; and Nigeria). Two estimation techniques are used: Fully Modified Ordinary Least Squares (FMOLS) and Generalized Method of Moments (GMM) techniques. The latter is used as a control measure to ascertain the robustness or otherwise of the results obtained from the former.

Results: We find evidence in support of a positive statistically significant relationship between entrepreneurship and financial development.

Conclusion: The paper concludes that entrepreneurship significantly predicts variations in the financial development of the study countries.