Ease of Doing Business and Enterprise Creation in Africa: A Cross-country Panel Analysis

Abstract

Despite the importance of enterprise creation in addressing socio-economic problems in the extant literature, the relationship between ease of doing business (EODB) and enterprise creation remains an open question. This study, therefore, investigates the effect of various components of EODB on enterprise creation in Africa. These effects are investigated in a panel of 43 African countries between 2006 and 2020. Driscoll and Kraay’s standard error, panel spatial consistent correlation estimation and augmented mean group are used to estimate the model. The results show that components of EODB, such as access to electricity, getting credit, protecting minority investors, dealing with construction permits, registering property, trading across borders, enforcing contracts and resolving insolvency, significantly influence enterprise creation in Africa. This suggests that these factors increase enterprise creation. However, paying taxes significantly negatively influences enterprise creation, thus lessening the number of enterprise creations in the region. The aggregate index of EODB has a positive influence on enterprise creation. These results are robust to a battery of alternative estimation techniques. Based on these findings, the study recommends a clear and comprehensive country-based framework that supports each of the doing business indicators and tracks periodically how effectively they are being implemented.