Four empirical essays on the role of institutional quality, political instability and entrepreneurship for economic growth and jobs in Sub-Saharan Africa

  • Most Sub-Saharan African (SSA) countries experienced sound economic growth and a declining rate of poverty over the last two decades. Though, by far, the SSA region remains the poorest in the world and faces tremendous political, social, and economic challenges. Moreover, due to the COVID-19 pandemic, SSA entered into a recession with a GDP growth rate of minus 5% in 2020 as ever recorded over 25 years. This has also induced an increase in poverty in the region, which adds up to the structural challenges and further highlight the need of sound policies to address economic growth, governance, jobs, and poverty for the region to meet the Sustainable Development Goals (SDGs) in 2030 and beyond. This thesis examines the effects of institutional quality, political instability, and a government targeted entrepreneurship program on the accumulation of human, physical, and financial capital by households and firms. In the literature, these factors are identified as the key determinants of economic growth and job creation, yet this thesisMost Sub-Saharan African (SSA) countries experienced sound economic growth and a declining rate of poverty over the last two decades. Though, by far, the SSA region remains the poorest in the world and faces tremendous political, social, and economic challenges. Moreover, due to the COVID-19 pandemic, SSA entered into a recession with a GDP growth rate of minus 5% in 2020 as ever recorded over 25 years. This has also induced an increase in poverty in the region, which adds up to the structural challenges and further highlight the need of sound policies to address economic growth, governance, jobs, and poverty for the region to meet the Sustainable Development Goals (SDGs) in 2030 and beyond. This thesis examines the effects of institutional quality, political instability, and a government targeted entrepreneurship program on the accumulation of human, physical, and financial capital by households and firms. In the literature, these factors are identified as the key determinants of economic growth and job creation, yet this thesis contributes to a knowledge gap, especially at the microeconomic level, on how households and firms accumulate these factors in the presence of weak institutional quality, political instability, and government targeted entrepreneurship programs. In particular, this thesis investigates heterogeneity as well as a single country study of the effects of institutional quality and political instability; it also employs a randomized controlled trial (RCT) to assess the impacts of two different targeted entrepreneurship support programs; and finally, it taps on data from this field experiment to assess the performance of two different targeting mechanisms for selecting growth-oriented entrepreneurs. Each paper is self-contained and three among the four papers were written with co-authors. The first paper assesses the effects of institutional quality and political instability on household assets and human capital accumulation in 19 Sub-Saharan African countries for the period 2003-16. In this paper, the concept of instability is enlarged to include factual instability as measured by the number of political violence and civil unrest events, perceived instability as measured by the perceptions of the quality of institutions by households, and the interplay between factual and perceived instability. Contrary to most previous analyses, this paper takes into account household wealth distribution to show how the effects of political instability differ for poor vs. rich households. For identification, I exploit the variation of factual and perceived instability across 185 administrative regions in the 19 countries. My regressions control for a large range of confounding factors measured at the levels of households, regions, and countries. Overall, factual and perceived instability are associated with higher investments in assets, and factual instability is also associated with more investment in house improvements, yet it is negatively associated with the ownership of financial accounts. With regard to the heterogeneous effects, increased factual or perceived instability is associated with more investments in physical capital but less investments in financial and human capital among rich households, and with less investments in physical, financial and human capital among poor households. These findings suggest that political instability might enhance the accumulation of wealth by rich households and reduce that of poor households, implying that the detrimental effects of political instability have lasting consequences for poor households, especially when poor households are exposed to an actual or even just perceived deteriorating quality of the country’s institutions. The second paper, written with Nicolas Büttner and Michael Grimm, analyzes households’ investments in assets and their consumption, and education and health expenditures when exposed to actual instability as measured by the number of political violence and protest events in Burkina Faso. There is a large, rather macroeconomic, literature that shows that political instability and social conflict are associated with poor economic outcomes including lower investment and reduced economic growth. However, there is only very little research on the impact of instability on households’ behavior, in particular their saving and investment decisions. This paper merges six rounds of household survey data and a geo-referenced time series of politically motivated events and fatalities from the Armed Conflict Location and Event Data project (ACLED) to analyze households’ decisions when exposed to instability in Burkina Faso. For identification, the paper exploits variation in the intensity of political instability across time and space while controlling for time-effects and municipality fixed effects as well as rainfall and nighttime light intensity, and many other potential confounders. The results show a negative effect of political instability on financial savings, the accumulation of durables, investment in house improvements, as well as on investment in education and health. Instability seems, in particular, to lead to a reshuffling from investment expenditures to increased food consumption, implying lower growth prospects in the future. With respect to economic growth, the sizable education and health effects seem to be particularly worrisome. The third paper, written with Michael Grimm and Michael Weber, employs a randomized controlled trial (RCT) to assess the short-term effects of a government support program targeted at already existing and new firms located in a semi-urban area in Burkina Faso. Most support programs targeted at small firms in low- and middle-income countries fail to generate transformative effects and employment at a larger scale. Bad targeting, too little flexibility and the limited size of the support are some of the factors that are often seen as important constraints. This paper assesses the short-term effects of a randomized targeted government support program to a pool of small and medium-sized firms that have been selected based on a rigorous business plan competition (BPC). One group received large cash grants of up to US$8,000, flexible in use. A second group received cash grants of an equally important size, but earmarked to business development services (BDSs) and thus less flexible and with a required own contribution of 20%. A third group serves as a control group. All firms operate in agri-business or related activities in a semi-urban area in the Centre-Est and Centre-Sud regions of Burkina Faso. An assessment of the short-term impacts shows that beneficiaries of cash grants engage in better business practices, such as formalization and bookkeeping. They also invest more, though, this does not translate into higher profits and employment yet. Beneficiaries of cash grants and BDSs show a higher ability to innovate. The results also show that cash grants cushioned the adverse effects of the COVID-19 pandemic for the beneficiaries. More generally, this study adds to the thin literature on support programs implemented in a fragile-state context. The fourth paper, written with Michael Weber, examines the selection of entrepreneurs based on expert judgments for a BPC in Burkina Faso. To support job creation in developing countries, governments allocate significant funds to a typically small number of new or already existing micro, small, and medium-sized enterprises (MSMEs) that are growth oriented. Increasingly, these enterprises are picked through BPCs where thematic experts are asked to make the selection. So far, there exists contrasting and limited evidence on the effectiveness and efficiency of these expert judgments for screening growth-oriented entrepreneurs among contestants in BPCs. Alternative or complementary approaches such as evaluation and selection algorithms are discussed in the literature but evidence on their performance is thin. This paper uses a principal component analysis (PCA) to build a metric for comparing the performance of these alternative mechanisms for targeting entrepreneurs with high potential to grow. The results show expert subjectivity bias in judging contestant entrepreneurs. The paper finds that the scores from the expert judgment and those from the algorithm perform similarly well for picking the top-ranked or talented entrepreneurs. It also finds that both types of scores have predictive power, i.e. have statistically significantly associated with 17 firm performance outcomes measured 10 or 34 months after the BPC started. Yet, the predictive power, as measured by the magnitude of the regression coefficients, is higher for the algorithm metric, even when it is considered jointly with expert judgment scores. Despite the statistical superiority of the algorithm, expert assessments at least through pitches of entrepreneurs have proved useful in many settings where free-riding or misuse of public funds may occur. Hence, efficiency and precision could be achieved by relying on a reasoned combination of expert judgments and an algorithm for targeting growth-oriented entrepreneurs. These four papers bring new insights on the relationship between weak institutions, political instability, and targeted government support to entrepreneurship for increasing the accumulation of financial, physical, and human capital, and productivity. And these are the key factors for spurring economic growth and creating jobs in SSA. These findings suggest that efficient institutions building in SSA countries would enhance citizen perceptions of good governance which would reduce political instability and enable households including the poor to accumulate productive assets, increase their productivity and reduce poverty. The findings also suggest that targeted government entrepreneurship support programs, e.g. in the forms of cash grants with monitored disbursements yet flexible in use, can enhance firms’ human capital, productive assets, and innovations, even in the short term. Moreover, the targeting mechanism of such programs could be made more effective and efficient by relying on a combinaison of expert judgments and an algorithm for picking growth-oriented entrepreneurs.show moreshow less

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Metadaten
Author:Sidiki Soubeiga
URN:urn:nbn:de:bvb:739-opus4-10326
Advisor:Michael Grimm
Document Type:Doctoral Thesis
Language:English
Year of Completion:2021
Date of Publication (online):2022/01/19
Date of first Publication:2022/01/19
Publishing Institution:Universität Passau
Granting Institution:Universität Passau, Wirtschaftswissenschaftliche Fakultät
Date of final exam:2021/12/15
Release Date:2022/01/19
GND Keyword:Subsaharisches Afrika; Wirtschaftsentwicklung; Wirtschaftswachstum
Page Number:6 ungezählte Seiten, x, 279 Seiten
Institutes:Wirtschaftswissenschaftliche Fakultät
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
open_access (DINI-Set):open_access
Licence (German):License LogoCreative Commons - CC BY - Namensnennung 4.0 International