Does Social Pressure Hinder Entrepreneurship in Africa? The Forced Mutual Help Hypothesis

Abstract

In the absence of a public safety net, wealthy Africans have the social obligation to share their resources with their needy relatives in the form of cash transfers and inefficient family hiring. We develop a model of entrepreneurial choice that accounts for this social redistributive constraint. We derive predictions regarding employment choices, productivity, and profitability of firms run by entrepreneurs of African versus non‐African origin. Everything else equal, local firms are overstaffed and less productive than firms owned by non‐locals, which discourages local entrepreneurship. Using data from the manufacturing sector, we illustrate the theory by structurally estimating the proportion of missing African entrepreneurs. Our estimates, which are suggestive due to the data limitation, vary between 8% and 12.6% of the formal sector workforce. Implications for the role of social protection are discussed.

Paying More for Less: Why Don't Households in Tanzania Take Advantage of Bulk Discounts?

“…The finding that households make frequent purchases as a way to ration consumption, perhaps due to worries that they will consume large stocks more quickly than they would like, is based on the analysis of shopping patterns for "temptation goods," which we identified through a separate survey effort in Tanzania. The suggestive evidence that households purchase in small quantities in order to avoid social taxation-non-household members consuming a portion of their purchases-aligns with recent work on redistributive pressures in similar settings (Anderson and Baland, 2002;Platteau, 2006;Goldberg, 2016;Baland, Guirkinger and Mali, 2011;Alby, Auriol and Nguimkeu, 2013;Jakiela and Ozier, 2016;Squires, 2016).…”

Social capital of entrepreneurs in a developing country: The effect of gender on access to and requests for resources

“…The downsides of social networks both in developing and developed countries have received less attention in the literature, although various negative aspects derived from social networks have been mentioned on occasion (Barr, 2002;Deguilhem et al, 2017;Nordman, 2016;Nordman and Pasquier-Doumer, 2015;O'Brien, 2012;Portes, 1998). Anecdotal evidence, early anthropological research (Hunter, 1962;Khalaf and Shwayri, 1966) and a few recent studies (Alby et al, 2014;Grimm et al, 2013) suggest that excessive claims on entrepreneurs is an important issue in developing countries, and this is linked to a scarcity of resources (Comola, 2016). Successful entrepreneurs face distributive obligations.…”

Do Informal Transfers Induce Lower Efforts? Evidence from Lab-in-the-Field Experiments in Rural Mexico

“…Di Falco and Bulte (2013) show that the presence of relatives induce lower levels of self-protection. The empirical analyses of Alby, Auriol, and Nguimkeu (2013), Grimm, Hartwig, and Lay (2016), and Squires (2016) indicate that kin taxes may be a significant barrier to entrepreneurship. Finally, a number of empirical and experimental studies, including Baland, Guirkinger, and Mali (2011), Di Falco and Bulte (2011), Jakiela and Ozier (2016), and Boltz, Marazyan, and Villar (2016), suggest that some people appear to undertake strategies to avoid having to share with kin.…”