Original Articles

Does Microfinance Promote Entrepreneurship and Innovation? A Macro Analysis


Abstract

Innovative entrepreneurs in Africa experience a lack of financial support and underdeveloped financial systems. Microfinance could offer a solution to this complex issue. In this respect, this research paper studies the contribution of microfinance to the innovation process through entrepreneurship. The study first reviews the effect of microfinance on opportunity-driven entrepreneurship and necessity-driven entrepreneurship. Second, it investigates the relationship between entrepreneurship and innovation. According to the literature, opportunity-driven entrepreneurship is more associated with different forms of innovation than necessity-driven entrepreneurship. Using pooled ordinary least squares (OLS) and random effects techniques on an unbalanced panel of 45 countries, our analysis supports the hypothesis that microfinance has a negative effect on necessity entrepreneurship. However, its effect on opportunity entrepreneurship depends on the socio-economic conditions of the countries. Regarding regional differences, there is strong evidence of an entrepreneurial shift from necessity to opportunity motivations in the Middle East and North Africa region and weak evidence in Sub-Saharan Africa.

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