Structural Transformation and the Dynamics of Entrepreneurship in Developing Countries: The Nigerian Labour Market Perspective

UoM administered thesis: Phd

  • Authors:
  • Kevwe Pela

Abstract

This thesis studies entrepreneurship in the process of structural transformation. It builds on classical literature that understands the structural transformation process as the transition from a factor driven economy (dominated by the primary sector) to an efficiency driven economy (dominated by manufacturing activities), and thereafter an innovation-driven economy (led by an entrepreneurial tertiary sector). Within this framework, the entrepreneur is seen as a key figure, in fact, a driver of successful structural transformation. The thesis starts by re-evaluating this theoretical framework at the backdrop of the current context of urbanisation without industrialisation (Gollin et al, 2015) or premature deindustrialisation (Rodrik, 2015) and tries to find out whether it is at all useful in understanding the new realities. It asks the following questions. What is the place of the manufacturing sector in the process of the new type of structural transformation in sub-Saharan Africa and what is the place of the entrepreneur in this process? What are the factors that constrain the growth of a dynamic, efficiency and innovation enhancing entrepreneurship? What is the role of gender in the development of successful entrepreneurial niches in the labour market? The context of this research is Nigeria, which over the past few years experienced phenomenal growth and substantial urbanization and structural transformation, yet is plagued by a number of socio-economic vulnerabilities. The core argument of this dissertation is built around three empirical chapters. The first empirical chapter studies: (i) The place of the self-employed individual in the labour market, the focus being on comparison of self-employed individuals, with salaried employees and those who do not work. The main objective is to establish whether self-employment is more akin to dynamic entrepreneurship or to hidden unemployment, and (ii) The allocation of self-employed individuals across the primary, manufacturing and service sectors and the corresponding returns to skills of self-employed individuals in these sectors. This exercise allows us to find out whether there is synergy between the allocation of entrepreneurs in highly productive sectors and their respective returns to skills in these sectors. Clearly, if it is possible for entrepreneurs to identify highly productive niches (in the inherently more productive and dynamic secondary and tertiary sectors), this would result in both higher motivation among individuals to acquire high skills and in the further development of high productivity niches in the economy. We find that although better educated self-employed individuals face higher probability of allocating into the tertiary sector than into either the primary or manufacturing sectors and also acquire high returns to their skills, the level and returns to skills of those allocated to the entrepreneurial sector are lower than those of salaried employees. The allocation of skilled labour and returns to skills among entrepreneurs in the manufacturing sector are the lowest. This is contrary to stylised perceptions that the manufacturing sector is the most productive sector in an economy and with the classical structural transformation paradigm which identifies the allocation of labour from the primary to a dynamic manufacturing sector as an important step in the process of economic development. Following up on the interesting results of the first empirical chapter of the dissertation, the second empirical chapter uses the Stochastics Production Frontier to identify factors that reduce the efficiency of micro and small business owners in Nigeria's manufacturing sector. In other words, it delves deeper into the problems associated with productive manufacturing sector entrepreneurial development, identified in the first empirical chapter. We find evidence that improvement in public infrastructure and social capital have positive influences on the performance of micro and small manufacturing firms. On the other hand, the positive effect of access to finance is stronger for urban firms than rural firms. We reflect on some possible explanations of these findings and on their policy implications. In the third empirical chapter, we address some conceptual controversies associated with female allocation into entrepreneurship. The neoclassical economics literature in the spirit of Becker (1991) argues that lower levels of education and outright discrimination of women in the salaried sector may make the self-employment sector preferable to them compared to the salaried employment sector. Yet, women face higher (asset and network related) barriers to entry in that sector compared to their male counterparts, hence it is exactly not clear which of these sectors will be characterised by greater incidence of female labour. At the same time, the evidence on whether the business success of male entrepreneurs is higher than that of female entrepreneurs is inconclusive. In an effort to throw light into these diverse (and at face value incompatible) sets of evidence, we first calculate the probability for an individual to allocate to either self-employment or salaried employment or not working using Markov Chain analysis to compare these probabilities across the two genders. We then explore the determinants of labour market transitions across these three sectors, drawing on a range of individual/human capital, household and institutional characteristics. Our results suggest that while self-employed women have higher tendency to drop out of the labour force compared to men, they are also slightly more likely than men to move from not working to self-employment. Women with higher levels of education are less likely to be self-employed, while marriage is a trigger for exiting the state of not working and becoming self-employed. Women from relatively poorer households are also more likely to move from the state of not working to self-employment. Taken together, our findings are consistent with the view that women are (on average) disadvantaged from entering more productive and remunerative sectors in the economy across both salaried employment and self-employment and are on average more likely to be self-employed as a push rather than a pull strategy. The overall conclusion of the dissertation is that a holistic approach is needed to overcome coordination failure and create space for both innovative entrepreneurial activities and skill acquisition.

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Original languageEnglish
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Award date1 Aug 2018