Funding sources, colonial legacy, and new firms’ creation in Africa

This study examines the determinants of new firm creation in Africa, focusing on external and internal funding sources and their interactions. It also explores the influence of colonial history by separately analyzing former British and French colonies. The primary goal is to help fill crucial gaps...

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Bibliographic Details
Published in:Economic change and restructuring 2024-10, Vol.57 (5), p.157, Article 157
Main Authors: Massidda, C., Piras, R.
Format: Article
Language:English
Subjects:
African literature
Colonies & territories
Development Economics
Economic Growth
Economic Policy
Economic underdevelopment
Economics
Economics and Finance
Entrepreneurship
Financing
Foreign aid
Foreign investment
Funding
International Economics
Job creation
Macroeconomics/Monetary Economics//Financial Economics
Political Economy/Economic Systems
Poverty
Remittances
Savings
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Summary:This study examines the determinants of new firm creation in Africa, focusing on external and internal funding sources and their interactions. It also explores the influence of colonial history by separately analyzing former British and French colonies. The primary goal is to help fill crucial gaps in African literature on the determinants of entrepreneurship. Given Africa's widespread poverty and underdevelopment, understanding what drives entrepreneurship is essential for job creation and economic growth. The study reveals three key findings. First, at the full sample level, remittances are the only external financing source positively associated with new firm creation, while foreign aid and foreign direct investment obstacle it. Internal sources, like savings and credit, do not show significant effects. Second, the subsample analysis reveals heterogeneous results: former British colonies' funding sources align with the overall findings, while in former French colonies, only savings support entrepreneurship. Third, considering control variables, the subsample analysis indicates two distinct entrepreneurship models: opportunity-based in former British colonies and necessity-based in former French colonies. These findings are noteworthy and provide significant policy implications at both national and international levels. Crucially, the positive role of remittances in financing new business initiatives, confirms that migration serves as a mutually beneficial arrangement for both sending African countries and the host countries.
ISSN:1573-9414
1574-0277
DOI:10.1007/s10644-024-09737-3