Economic Implications of Business Dynamics for KE-Associated Economic Growth and Inclusive Development in African Countries

Asongu, Simplice and Amavilah, Voxi and Andrés, Antonio R. (2014): Economic Implications of Business Dynamics for KE-Associated Economic Growth and Inclusive Development in African Countries.

Abstract

This paper develops an empirically-relevant framework (a) to examine whether or not the African business environment hinders or promotes the knowledge economy (KE), (b) to determine how the KE which emerges from such an environment affects economic growth, and (c) how growth in turn relates to the ‘inclusive development’ of 53 African countries during the 1996-2010 time period. The framework provides a modest guide to policymaking about, and further research into, such relationships. We implement the framework by building a three-stage model and rationalizing it as five interrelated hypotheses. To allow greater concentration on the issues that are themselves already complex, our model is very simple, but clear. For example, we make neither an attempt to evaluate causality nor to test for it, even though we suspect the links to be multi-directional – opportunity costs are everywhere. Instead we focus on fundamental relationships between the dynamics of starting business and doing business as expressed in the state of KE, and through it to the inclusive development via the economic growth of those countries. Estimation results indicate that the dynamics of starting and doing business explain strongly a large part of variations in KE. The link between KE and economic growth exists, but it is weak, and we provide plausible reasons for such a result. Despite the weak association between KE and economic growth, KE-influenced growth plays a very important role in inclusive development. In fact, growth of this kind has stronger effects on inclusive development and by implication on poverty reduction, than some of conventional controls in this study such as FDI, foreign aid, and even private investment. There is clearly room for further research to improve the results, but just as clearly practical policy is best served by not neglecting the relationships examined in this paper.

• Item Type: MPRA Paper
• Language: English
• Keywords: Business Dynamics; Knowledge Economy; Development; Africa
• Subjects: L - Industrial Organization > L5 - Regulation and Industrial Policy > L59 - Other; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O20 - General; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O30 - General; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa

References

Aghion, P., & Howitt, P., (1992). “A model of growth through creative destruction”, Econometrica 60(2), pp. 323-351.

Albanesi, S., (2007). “Inflation and Inequality”, Journal of Monetary Economics, 54(4), pp.1088-1114.

Amavilah, V. H. S., (2009). “Knowledge of African countries: production and value of doctoral dissertations”, Applied Economics, 41 (8), pp. 977-989.

Amavilah, V.H.S., (2003). “Resource intra-actions and intractions: Implication for economic growth”, http://128.118.178.162/eps/ge/papers/0508/0508004.pdf.

Amavilah, V. H., Asongu, S. A., & Andrés, A. R., (2014). “Globalization, peace & stability, governance and knowledge economy”, African Governance and Development Institute Working Paper No. 14/012.

Andrés, A. R., Asongu, S. A., & Amavilah, V. H. S., (2014). “The Impact of Formal Institutions on Knowledge Economy”, Journal of the Knowledge Economy: http://link.springer.com/article/10.1007%2Fs13132-013-0174-3

Anyanwu, J. C., (2012). “Developing Knowledge for the Economic Advancement of Africa”, International Journal of Academic Research in Economics and Management Sciences, 1(2), pp. 73-111.

Asongu, S. A., (2013a). “Investment and Inequality in Africa: Which Financial Channels Are Good For The Poor”, The African Finance Journal, 15(2), pp. 43-65.

Asongu, S. A., (2013b). “How has mobile phone penetration stimulated financial development in Africa?”, Journal of African Business, 14(1), pp. 7-18.

Asongu, S. A., (2014a). “The Questionable Economics of Development Assistance in Africa: Hot-Fresh Evidence, 1996-2010”, The Review of Black Political Economy, 41(4), pp. 455-480.

Asongu, S. A., (2014b). “Software piracy and scientific publications: knowledge economy evidence from Africa”, African Development Review, 26(4): Forthcoming

Asongu, S. A., (2014c). “Software piracy, inequality and the poor: evidence from Africa”. Journal of Economic Studies, 41(4), pp. 526 - 553.

Asongu, S. A., (2015). “The impact of mobile phone penetration on African inequality”. International Journal of Social Economics, 26(4): Forthcoming

Barro, R. J., (1991). “Economic growth in a cross section of countries”, Quarterly Journal of Economics CVI (2), pp. 407-443.

Bhagwati, J., (1958). “Immiserizing growth: A geometrical note” Review of Economic Studies 25 (June), pp. 201-205.

Bulir, A., (1998). “Income inequality: does inflation matter?”, IMF Working Paper No. 98/7.

Chavula, H. K., (2010). “The Role of Knowledge in Economic Growth. The African Perspective”, ICT, Science and Technology Division (ISTD), United Nations Economic Commission for Africa (UNECA), pp. 1-26.

Demombynes, G., & Thegeya, A. (2012, March). “Kenya’s Mobile Revolution and the Promise of Mobile Savings”. World Bank Policy Research Working Paper, No. 5988.

Devarajan, S, Easterly, W., & Pack, H., (2001). “Is investment in Africa too high or too low? Macro- and micro-evidence”, Journal of African Economies, 10 (suppl 2), pp. 81-108.

Eifert, B, Gelb, A, & Ramachandran, V., (2005) Business Environment and Comparative Advantage in Africa: Evidence fro the Investment Climate Data. Working Paper No. 56, Center for Global Development, Washington, DC.

Ernst & Young (2013). “Doing business in Africa: From strategy to execution”, Growing Beyond http://www.ey.com/Publication/vwLUAssets/Doing_business_in_Africa_-_From_strategy_to_execution/$FILE/130130%20SGF%20Thought%20Leadership%20email%20version.pdf (Accessed: 29/11/2014).

Esselaar, B., Gilwald, A., & Stork, C., (2007). “Towards an Africa e-index: Telecommunications sector performance in 16 African countries”. Research ICT Africa, www.researchICTafrica.net.

Fafchamps, M., (2001). “Networks, communities and markets in Sub-Saharan Africa: Implications for firm growth and investment”, Journal of African Economies, 10 (supl 2), pp. 109-142.

Fomby, T. B., Johnson, S. R., & Hill, R. C., (1984) Advanced Econometric Methods. New York: Springer-Verlag. Chapter 13, pp. 283-306.

Fosu, A., Mlambo, K., Oshikoya, T. W., (2001). “Business environment and investment in Africa: An overview”, Journal of African Economies, 10 (Supplent 2), pp. 1-11.

Fosu, A. K., (2009). “Inequality and the Impact of Growth on Poverty: Comparative Evidence for Sub-Saharan Africa”, Journal of Development Studies, 45(5), pp. 726-745.

Fosu, A., (2013a), “Growth of African Economies: Productivity, Policy Syndromes and the Importance of Institutions”, Journal of African Economies, 22(4), pp. 523-551.

Fosu, A., (2013b), “Institutions and African Economies: An Overview”, Journal of African Economies, 22(4), pp. 491-498.

Fosu, A. K., (2014). “Growth, Inequality and Poverty in Sub-Saharan Africa: Recent Progress in a Global Context”, CSAE Working Paper Series 2014-17.

Gerba, D. T. (2012). “Impact of entrepreneurship education on entrepreneurial intentions of business and engineering students in Ethiopia”, African Journal of Economic and Management Studies, 3(2), pp. 258-277.

Gille, L., Noumba Um, P, Rudel, C., & Simon, L., (eds) (2002) “A model for calculating interconnection costs in telecommunications”. The World Bank. http://www.ppiaf.org/sites/ppiaf.org/files/publication/WB%20-%20Model%20Calculating%20Interconnection%20Costs%20Telecoms%202004.pdf (Accessed: 27/11/2014).

Gilwald, A., & Stork, C., (2008). “Towards evidence-based ICT policy and regulation: ICT access and usage in Africa”, Volume 1 policy Paper Two, Research ICT Africa, www.researchICTafrica.net.

Gunning, J. W., & Mengistae, T., (2001). “Determinants of African manufacturing investment: The microeconomic evidence” Journal of African Economies, 10 (Supplement 2), pp. 48-80.

Gutierrez, L. H., Lee, S., & Virto, L. R., (2009). “Market concentration and performance in mobile markets in Africa and Latin America”. OECD Development Center (mimeo).

Ianchovichina, E., & Lundstrom, S., (2009). “Inclusive growth analytics: Framework and application”. Policy Research Working paper No. 4851. The World Bank. https://openknowledge.worldbank.org/bitstream/handle/10986/4047/WPS4851.pdf?sequence=1 (Accessed: 27/11/2014).

Ita, J. J., Singh P., & Adelosa, S., (2014). “Factor that Influence Entrepreneurial Intentions Among Undergraduates of South-South and Southeast Nigeria”, Oxford Brookes University. http://dx.doi.org/10.2139/ssrn.2506268 (Accessed: 08/12/2014).

Jolliffe, I.T. (1986). Principal Component Analysis. New York: Springer-Verlag.

Jolliffe, I. T., (2002). Principal Component Analysis (2ndEd.), New York: Springer.

Jonathan, D., & Camilo, T. (2008). “Mobile banking and economic development: Linking adoption, impact and use”. Asian Journal of Communication, 18(4), pp. 318-322.

Kalwij, A., & Verschoor, A., (2007). “Not by Growth Alone: The Role of the Distribution of Income in Regional Diversity in Poverty Reduction”, European Economic Review, 51(4), pp. 805-829.

Kjoller-Hansen, A. O., & Sperling, L. L., (2013). “Measuring Inclusive Growth Experiences: Five criteria for productive employment”. http://www1.wider.unu.edu/inclusivegrowth/sites/default/files/IGA/Lindbjerg%20Sperling.pdf (Accessed 8/15/2014).

Kuada, J., (2009). “Gender, Social Networks, and Entrepreneurship in Ghana”, Journal of African Business, 10(1), pp. 85-103.

Kuada, J., (2011). “Understanding growth options and challenges in African economies”, African Journal of Economic and Management Studies, 2(1)

Kuznets, S., (1955). “Economic Growth and Income Inequality”. American Economic Review 45 (March), pp. 1-28

Kuznest, S., (1971) Economic Growth of Nations: Total Output and Production Structure. Belknap Press/Harvard University Press: Cambridge (Mass).

Krugman, P. M., (2008). “The increasing returns revolution in trade and geography”. http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2008/krugman_lecture.pdf (Accessed 8/11/2014).

Lee, K., (2009), “How Can Korea be a Role Model for Catch-up Development? A ‘Capability- based’ View”, UN-WIDER Research Paper No. 2009/34.

Leke, A., Lund, S., Roxburgh, C., & Van Wamelen, A., (2010). “What’s driving Africa’s growth”, McKinsey & Company report. http://www.mckinsey.com/insights/economic_studies/whats_driving_africas_growth (Accessed: 29/11/2014).

Lewis, A., (1955). Theory of Economic Growth. Milton Park: Routledge.

Lopéz, J. H., (2004). “Pro-growth, Pro-poor: Is There a Tradeoff?”, World Bank Publications.

Lucas, R., (1988). “On the mechanics of economic development” Journal of Monetary Economics, 22(1), pp. 2-42.

Lucas, R., (1993). “Making a miracle”, Econometrica, 61(2), pp. 251-272.

Lucas, R., & Moll, B., (2014). “Knowledge growth and the allocation of time”, Journal of Political Economy, 122(1), pp. 1-51.

Majerova, I. (2012) “Comaprison of lod and new methodology of Human Capital and Poverty Indixes: A case of the least developed countries”, Journal of economic Economics Studies and Research, http://www.ibimapublishing.com/journals/JESR/2012/290025/290025.pdf.

Mankiw, N. G., Romer, D., & Weil, D., (1992). “A contribution to the empirics growth”, Quarterly Journal of Economics, 107(2), pp. 407-437.

Mensah, S. N., & Benedict, E., (2010). “Entrepreneurship training and poverty alleviation: Empowering the poor in the Eastern Free State of South Africa”, African Journal of Economic and Management Studies, 1(2), pp. 138-163.

Mlachila, M., Tapsoba, R., & Tapsoba, S. J. A., (2014). “A Quality of Growth Index for Developing Countries: A Proposal”, IMF Working Paper No. 14/172.

Mlambo, K., & Oshikoya, T. W., (2001). “Macroeconomic factors and investment in Africa”, Journal of African Economies, 10 (suppl 2), pp. 12-47.

Musila, J. W., & Sigue, S. P., (2010). “Corruption and international trade: An empirical investigation of African countries”, The World Economy, 33(1), pp. 129-146.

Musila, J. W., & Sigue, S. P., (2011). “Accelerating foreign direct investment flow to Africa: from policy statements to successful strategies”, Managerial Finance, 32(7), pp. 577-593.

N’da, K.C., (2012). “The cost of doing business in Sub-Saharan Africa Bridges Africa”, International Center for Trade and Sustainable Development, 1(6): http://www.ictsd.org/bridges-news/bridges-africa/news/the-cost-of-doing-business-in-sub-saharan-africa (Accessed 8/15/2014).

Nelson, R. R., (1996) The Sources of Economic Growth Cambridge (Mass): Harvrd University Press.

Neven, D., & Droge, C, L. M., (2001). “A diamond for the poor? Assessing Porter’s diamond model for the analysis of agro-food clusters in developing countries”. http://www.agrifood.info/Agrifood/members/Congress/Congress2001Papers/Symposium/Neven.pdf (Accessed 8/.15.2014).

Oluwatobi, S., Efobi, U., Olurinola, I., & Alege, P., (2014). “Innovation in Africa: Why Institutions Matter?”, South African Journal of Economics; http://onlinelibrary.wiley.com/doi/10.1111/saje.12071/abstract

Open Working Group on Sustainable Development Goals (OWG) 2013 Statistical note for the issue brief on: Sustained and inclusive economic growth and infrastructure development and industrialization (draft, 22 November) http://sustainabledevelopment.un.org/content/documents/2673OWG%20statistical%20note%20-%20Sustained%20and%20inclusive%20economic%20growth%20and..%20(as%20of%2022%20Nov).pdf. (Accessed: 27/11/2014).

Oseifuah, E. K., (2010). “Financial literacy and youth entrepreurship in South Africa”, African Journal of Economic and Management Studies, 1(2), pp. 164-182.

Piketty, T., (2014). “Capital in the Twenty First Century”, Harvard University Press.

Pinkivskiy, M., & Sala-i-Martin, X., (2014). “Africa is on time”, Journal of Economic Growth, 19(3), pp. 311-333.

Porter, M. E., (1990) The Competitive Advantage of Nations. New York: Free Press.

Porter, M. E., (1998). “The Adam Smith Address: Location, Clusters, and the “New” Microeconomics of Competition”. Business Economics, 33(1), pp. 7-13. http://www.econ.nyu.edu/dept/courses/niemira/980107.pdf (Accessed 8/11/2014).

Richardson, H. W., (1969) Regional Economics: Location Theory, Urban Structure, and Regional Change. New York: Praeger Publishers. Chapters 1-5.

Romer, P.M., (1993). Idea gaps and object gaps in economic development, Journal of Monetary Economics 32(3): 543-573.

Romer, P. M., (1990). “Endogenous technological change”, Journal of Political Economy 98(5): S71-S102.

Saxegaard, M., (2006). “Excess liquidity and effectiveness of monetary policy: evidence from sub-Saharan Africa”, IMF Working Paper No. 06/115.

Schultz, TW 1981 Investing in People: The Economics of Population Quality. Berkeley: University of California Press.

Sen, A., (1983). “Development: Why way now?”, The Economic Journal, 93(372), pp. 745-762.

Sigue, S. P., (2011). “Strengthening the position of a premier outlet for African business research”, Journal of African Business, 12(1), pp. 1-7.

Singh, P., (2014, September). “Austerity, Welfare State and Eco-Socialism: With Special reference to the United Kingdom”, Economic and Political Weekly, XLIX(39), pp. 111-118.

Singh, S., Simpson, R., Mordi, C., & Okafor, C., (2011). “Motivation to become an entrepreneur : a study of Nigerian women’s decisions”, African Journal of Economic and Management Studies, 2(2), pp. 202-219.

Smith, A 1937[1776] An Inquiry into the Nature and causes of the Wealth of Nations. Edwin Canna (ed) and Max Lerner (introducer). New York: modern Library. Book 1, Chapters 1-3.

Spring, A., Rolfe, R & Odera, L., (2013). Sub-Saharan Africa Business Environment Report: 2012-13 – Business Information at a Ready Glance. http://warrington.ufl.edu/centers/ciber/docs/SABER_2012-2013.pdf (Accessed 8/15/214).

Solow, R. M., (1956). “A contribution to the theory of economic growth” Quarterly Journal of Economics, 70(1), pp. 65-94.

Solow, R. M., (1957). “Technical change and the aggregate production function”, Review of Economics and Statistics, 39(3, pp. 312-320.

Stan, E., & Garnsey, E., (2006). Entrepreneurship and the Knowledge Economy, University of Cambridge.

Stigler, G. J., (1957) Adam Smith: Selections from the The Wealth of nations. New York: Wiley-Blackwell.

Suh, J., & Chen, D. H. C., (2007). “Korea as a Knowledge Economy. Evolutionary Process and Lessons Learned”, Korea Development Institute, https://www.usp.ac.fj/worldbank2009/frame/Documents/Publications_regional/409300PAPER0KR101OFFICIAL0USE0ONLY1.pdf (Accessed: 19/03/2014).

Swan, T. W., (1956). “Economic growth and capital accumulation”, Economic Record, 32(2), pp. 334-361.

Swan, T.W., (2002). “Economic Growth”, The Economic Record, 78(243), pp. 375-380.

Tchamyou, S. V., (2014a). “The role of Knowledge Economy in African Business”, HEC-Management School, University of Liege.

Tchamyou, S. A., (2014b). “The effect of entrepreneurship on Knowledge Economy in Africa”, African Governance and Development Institute Working Paper.

Temple, J. (1999) “The new growth evidence”, Journal of Economic Literature XXXVII(1), 112-156.

Temple, J. & P. Johnson (1998) Social capability and economic growth, Quarterly Journal of Economics, CXIII (3), 965-990.

Thorbecke, E., (2013). “The Interrelationship Linking Growth, Inequality and Poverty in Sub-Saharan Africa”, Journal of African Economies, 33, Suppl_1, pp. 15-48.

United Nations (Various) TST Issue Brief: Sustained and Inclusive Economic Growth, Infrastructure Development, and Industrialization. http://sustainabledevelopment.un.org/content/documents/2078Draft%20Issue%20Brief_Sustained%20and%20Inclusive%20Economic%20Growth_Final_16Oct.pdf. (Accessed: 27/11/2014).

United Nations (Various) Sustained and Inclusive Economic Growth, Infrastructure Development, and Industrialization. Also see http://sustainabledevelopment.un.org/index.php?page=view&type=9502&menu=1565&nr=7. (Accessed: 27/11/2014).

United Nations Development Programme, Various, Human Development Reports. Technical Notes. hdr.undp.org/default/files.hdr14_technical_notes-1.pdf.

United Nations (2013). “A New Global Partnership: Eradicate Poverty and Transform Economies Through Sustainable Development”, The Report of the High-Level Panel of Eminent Persons on the Post-2015 Development Agenda. http://www.un.org/sg/management/pdf/HLP_P2015_Report.pdf (Accessed: 29/11/2014).

Wantchekon, L., Klasnja, M., & Novta, N., (2014). “Education and Human Capital Externalities: Evidence from Colonial Benin”, Department of Politics, Princeton University.

World Bank (WB) and International Finance Corporation (IFC) 2013 Doing business in the East African Community 2013. http://www.doingbusiness.org/reports/regional-reports/east-african-community (Accessed 8/15/2014).

World Bank, Measuring knowledge in the World’s Economies. Washington, D.C. http://siteresources.worldbank.org/INTUNIKAM/Resources/KAM_v4.pdf; also see www.worldbank.org/kam.

Young, A., (2012). “The African growth miracle”, Journal of Political Economy, 120 (4). pp. 696-739.

Zakic, N., Jovanovic, A., & Stamotovic, M., (2008). “External and internal factors affecting the product and business process innovations”, Economics and Organization, 5(1), pp. 17-29.