Capital Controls, Entrepreneurship and Economic Growth in Selected Developing Countries

Abstract

This paper presents the role of capital controls in the relationship between entrepreneurship and economic growth in developing countries. Data of forty-four ( 44) developing countries for the period of 2005-2014 were sourced and analysed using panel generalized method of moments and two stage least square. The result revealed that entrepreneurship had a robust, positive and significant effect on economic growth. In addition, the study confirmed that the intensity of capital controls matter could further strengthen the relationship between entrepreneurship and economic growth in developing countries. These results were not only consistent with intuition and experience, but also with empirical findings of the previous studies. Theoretically, it confirmed the view of Keynesian economists that promote the use of capital controls in an economy. Contribution/ Originality:This study is one of the few studies to provide a comparative analysis between African and other developing countries. It answers the following questions: What is the effect of entrepreneurship on economic growth in developing countries? Are there any dynamic effects of capital controls on economic growth in selected developing countries?

Financial inclusion in Africa: does it promote entrepreneurship?

“…We take our motivation from this and extend the line of argument by investigating the impact of financial inclusion on entrepreneurial development in 13 selected African countries. Undoubtedly, investigating factors promoting entrepreneurship has been an interesting area in Africa; however, financial inclusion impact on entrepreneurial activities is yet to be explored (Munemo, 2015;Adusei, 2016;Munemo, 2018;Ajide et al, 2019). This paper contributes to the literature in many ways.…”

“…It provides better estimates when outliers are involved, which may lead to serious distortions in OLS. In addition, we also estimate our model using instrumental variable estimation method of two stage least square to follow the work of Ferede (2019) and Ajide et al (2019). The instrumental variable estimation takes care of relevant omitted determinants of entrepreneurship.…”

Foreign aid and entrepreneurship in Africa: the role of remittances and institutional quality

“…Stel et al (2005) provide evidence that entrepreneurship and growth is negative in developing countries while in developed countries is positive. However, the recent studies of Ajide et al (2019) and Adusei (2016) clear the air by empirically proving that the relationship is positive in developing countries. In addition, we include time (days) required to start a business (TIME) and start-up procedures to start a business (STARTUP) to proxy business regulation and start-up cost, respectively (Klapper and Love 2011;Munemo 2018;Ajide 2020a, b).…”

“…For robustness test, we re-estimate Eqs. (2) and (3) using the IV estimation of twostage least square technique to follow the procedure of Ferede (2019), Ajide et al (2019), Moore et al (2020a, b) and Ajide (2020a). We further employ IV estimation because scholars such as Adeniyi et al (2015) state that there is a need to be cautious on the use of the estimation techniques employed so far due to potential endogeneity.…”

“…The extant literature shows that foreign aids and remittances are sources of external finance in which developing countries earn foreign exchange revenues (Nwaogu and Ryan 2015). The attention of scholars has been drawn to the relevance of entrepreneurship in developmental issues including unemployment, formation of firms and economic growth at regional and international level (Acs and Storey 2004;Jia 2018;Ajide et al 2019). In the area of entrepreneurial finance, there are ongoing divergent opinions on the significance of foreign external sources in flourishing entrepreneurial process.…”