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

2014 African Governance and Development Institute WP/14/023

45 Pages Posted: 15 Dec 2014

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Voxi Heinrich S. Amavilah

REEPS

Antonio Andrés

Universidad Camilo José Cela

Date Written: December 15, 2014

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.

Keywords: Business Dynamics; Knowledge Economy; Development; Africa

JEL Classification: L59; O10; O30; O20; O55

Suggested Citation

Asongu, Simplice and Amavilah, Voxi Heinrich S. and Andrés, Antonio, Economic Implications of Business Dynamics for KE-Associated Economic Growth and Inclusive Development in African Countries (December 15, 2014). 2014 African Governance and Development Institute WP/14/023. Available at SSRN: https://ssrn.com/abstract=2538318 or http://dx.doi.org/10.2139/ssrn.2538318

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

Voxi Heinrich S. Amavilah

REEPS ( email )

P.O. Box 38061
Phoenix, AZ 85069-8061
United States

Antonio Andrés

Universidad Camilo José Cela ( email )

Castillo de Alarcón, 49 Urb
Villafranca del Castillo
Madrid
Spain

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