Is Entrepreneurship a Significant Determinant of Financial Development?

Abstract

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.