Stunted Growth : Why Don't African Firms Create More Jobs?

Many countries in Africa suffer high rates of underemployment or low rates of productive employment; many also anticipate large numbers of people to enter the workforce in the near future. This paper asks the question: Are African firms creating fewer jobs than those located elsewhere? And, if so, why? One reason may be that weak business environments slow the growth of firms and distort the allocation of resources away from better-performing firms, hence reducing their potential for job creation. The paper uses data from 41,000 firms across 119 countries to examine the drivers of firm growth, with a special focus on African firms. African firms, at any age, tend to be 20-24 percent smaller than firms in other regions of the world. The poor business environment, driven by limited access to finance, and the lack of availability of electricity, land, and unskilled labor have some value in explaining this difference. Foreign ownership, the export status of the firm, and the size of the market are also significant determinants of firm size. However, even after controlling for the business environment and for characteristics of firms and markets, about 60 percent of the size gap between African and non-African firms remains unexplained.

Bibliographic Details

Main Authors:	Ramachandran, Vijaya, Iacovone, Leonardo, Schmidt, Martin
Language:	English en_US
Published:	World Bank, Washington, DC 2013-12
Subjects:	BUSINESS CLIMATE, BUSINESS ENVIRONMENT, BUSINESS ENVIRONMENTS, BUSINESS SECTOR, CAPABILITIES, CAPITAL FORMATION, COMPETITIVENESS, COOPERATIVES, DEVELOPMENT ECONOMICS, DRIVERS, ECONOMIC THEORY, ECONOMICS, ELECTRICITY, EMPIRICAL EVIDENCE, ENTERPRISE SURVEYS, ENTREPRENEUR, ENTREPRENEURSHIP, ENVIRONMENTS, ESP, EXPANSION, FINANCIAL INSTITUTIONS, FIRM SIZE, FIRMS, GOVERNMENT EXPENDITURES, GOVERNMENT POLICY, GOVERNMENT REGULATION, GROWTH POTENTIAL, HIGH TRUST, HUMAN CAPITAL, INCOMPLETE CONTRACTS, INFORMATION SYSTEMS, INNOVATION, JOB CREATION, LABOR COSTS, LABOR PRODUCTIVITY, LEASING, LENDERS, LIMITED ACCESS, MANUFACTURING, MARKET ACCESS, MICROFINANCE, MICROFINANCE INSTITUTIONS, MISSING VALUES, MNE, NATIONAL INCOME, OPEN ACCESS, PERFORMANCE MEASURES, POLICY ENVIRONMENT, POLITICAL ECONOMY, PRIVATE SECTOR, PRIVATE SECTOR DEVELOPMENT, PROPERTY RIGHTS, REGISTRIES, RESULT, RESULTS, RETAINED EARNINGS, SIZE OF FIRM, SIZE OF FIRMS, SMALL BUSINESS, SMALL ENTERPRISES, SMALL FIRMS, SUPPLIERS, TERMS OF TRADE, THEORETICAL MODELS, THEORY OF THE FIRM, UNEMPLOYMENT, UNSKILLED LABOR, UNSKILLED WORKERS, USES, WEB, WORKING CAPITAL,
Online Access:	http://documents.worldbank.org/curated/en/2013/12/18662376/stunted-growth-don t-african-firms-create-more-jobs https://hdl.handle.net/10986/16943
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