Foreign aid and entrepreneurship in Africa: the role of remittances and institutional quality
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Foreign aid and entrepreneurship in Africa: the role of remittances and institutional quality Folorunsho M. Ajide1 · Tolulope T. Osinubi2 Received: 19 May 2020 / Accepted: 1 October 2020 © Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract This study investigates the impact of foreign aid and remittance inflows on entrepreneurship progress in Africa. The role of institutional quality in the relationship between foreign aid and entrepreneurship is also investigated. We explore data of 19 African countries for a period of 2006–2017, and panel data regression techniques are employed. The study finds that: (1) Foreign aid impact on entrepreneurship is negative. (2) The remittances mediate the negative impact of foreign aid on entrepreneurship. (3) Institutional quality mediates the negative impact of foreign aid on entrepreneurial progress. (4) The threshold level of remittance at which foreign aid would meaningfully enhance entrepreneurship is 10.59 as a percentage of GDP while that of institutional quality is 5.04 on a scale of 10 point. (5) The role of remittances and foreign aids is complementary in firm start-up activities. (6) Institutional quality plays important roles in moderating impact of foreign aid on firm start-up activities. In addition, our results show that concentration in banking industry does not benefit entrepreneurial activities. The study concludes that foreign aids and remittances perform complementary roles in improving the level of entrepreneurial development in Africa. The strong institutional environment is very important in promoting entrepreneurial success. These findings are robust to alternative estimations. Keywords Aid · Bank concentration · Entrepreneurship · Institutions · Remittances JEL Classification L26 · F35 · F36 · O55
* Folorunsho M. Ajide [email protected] Tolulope T. Osinubi [email protected] 1
Department of Economic, University of Ilorin, Ilorin, Nigeria
2
Department of Economics, Obafemi Awolowo University, Ife, Nigeria
13
Vol.:(0123456789)
Economic Change and Restructuring
1 Introduction This study empirically investigates the roles of remittances and institutional quality in the foreign aid impact on entrepreneurial process in Africa. 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. Studies show that aggregate foreign aid hampers entrepreneurial technologies while aid on infrastructure does not significantly improve the level of entrepreneurship but increases business failure rate (J
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