The Characteristics and Determinants of Entrepreneurship in Ethiopia

Abstract

Using Global Entrepreneurship Monitor (GEM) approach, the study analyzes the characteristics and determinants of entrepreneurship in Ethiopia. Primary data are collected through the Adult Population Survey (APS) and analyzed using Probit model. To overcome the hetroscedasticity problem, which is prevalent in cross section studies, robust standard errors were employed. The findings of the study reveal that about 53% of the adults in Ethiopia are potential entrepreneurs. The perceived opportunity rate in Ethiopia (65%) is above the average for factor-driven economies (63%); while the perceived capabilities rate (69%) is below the average for factor-driven economies (71%). Ethiopia’s rate of entrepreneurial intention (22%), early-stage entrepreneurial activity rate (12.2%), and established business activity rate (8.3%) are below the average for both factor-driven economies and Sub-Saharan African countries. The econometric analysis indicates that demographic variables such as age, level of education, societal attitude towards entrepreneurship, and social networks (knowing someone in business) are significant in influencing potential entrepreneurship and entrepreneurial intensions in Ethiopia. In early-stage entrepreneurial activity (TEA),"Fear of failure" is found to have a negative and statistically significant effect. On the other hand, the probability of engaging in TEA significantly differs between those living in urban and rural areas. Furthermore, the results provide basic data to develop national entrepreneurship strategy, consistent with the MSE development strategy and other macro and sectoral level strategies. Thus, the low rate of TEA and established business in Ethiopia can be improved by expanding the quantity and quality of support services. Moreover, there is also a need to develop region-specific entrepreneurial development plan to reduce region to region or urban-rural differences. Keywords: Global Entrepreneurship Monitor (GEM), Perceived Opportunities and Capabilities, Total Early-Stage Entrepreneurial Activity (TEA)