The African entrepreneurship gaps: How important are the institutional environments and the financial system?
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Date
2026
Authors
Tendai Gwatidzo
Kalu Ojah
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
Entrepreneurship is widely recognized as an important driver of economic growth and structural transformation. This study examines the effects of institutional quality and financial sector development on entrepreneurship using data for 26 African countries and 80 non-African countries, comprising mainly emerging and developed economies, over the period 2002-2016. Entrepreneurship is measured using data from the World Bank Entrepreneurship Database and the Global Entrepreneurship Monitor. The study pursues two objectives: first, to investigate the impact of institutional quality and financial sector development on entrepreneurship; and second, to assess the existence and magnitude of entrepreneurship gaps in Africa. The results show that both institutional quality and financial sector development are positively and significantly associated with entrepreneurship, and that these findings are robust to alternative measures of both constructs. Furthermore, African countries exhibit significantly lower levels of entrepreneurship than non-African countries. Entrepreneurship-gap estimates indicate that actual entrepreneurship levels in many African countries fall short of those predicted under the stronger institutional and financial conditions observed in emerging and developed economies outside Africa. Results based on the World Bank Entrepreneurship Database are generally more robust than those obtained using Global Entrepreneurship Monitor data. Overall, the findings underscore the critical role of strong institutions and well-developed financial systems in promoting entrepreneurship. The study concludes that narrowing entrepreneurship gaps in Africa requires sustained efforts to improve institutional quality and deepen financial sector development, thereby creating a more conducive environment for entrepreneurial activity and economic growth.