Institutions and Entrepreneurship in Africa: Does Democracy Matter?

Abstract

Previous studies on the relationship between institutions and entrepreneurship do not cover the relevance of democracy in strengthening the two variables. It is not clear whether democratic regimes promote entrepreneurship in Africa. This study contributes to the debate by examining the impact of democracy on entrepreneurship in Africa. It also provides fresh insights by analysing how democracy can strengthen the relationship between institutional quality and entrepreneurship. Panel data from 23 African nations over the period 2006–2018 is used for the study. The results based on the panel-spatial correlation consistent technique augmented with least square dummy variables (PSCC-LSDV) show that a democratic regime is more favourable for promoting entrepreneurship. Findings reveal that good institutions promote entrepreneurship, and democratic regimes strengthen the relationship. It is also found that democracy and institutional quality perform complementary roles in promoting entrepreneurship in Africa. The findings suggest that an African nation with a truly democratic system of government can encourage entrepreneurial activities within its economy by using the opportunity presented by democracy to strengthen its institutional quality.