Firm-level determinants of employment growth in East Africa

Abstract

This study examines the firm level determinants of employment growth in East Africa in which they are categorized as firm specific, entrepreneur specific and business environment characteristics. Using a cross-sectional World Bank Enterprise survey dataset and pooled Ordinary Least Squares estimation (OLS), the results indicate that; (1) employment growth is significantly associated with firm specific characteristics (employment growth is positively related to firm size and innovation while it is negatively associated with the age of the firm), (2) a weak business environment characterized by electricity outages, informal payments and poor court system undermines the firm’s ability to contribute to employment growth while strong business environment such as access to finance is positively associated with employment growth (3) employment growth is also positively influenced by managerial experience. Given these findings the study recommends that policy makers must focus on formulation and implementation of policies aimed at improving the business environment where firms operate. This is through increasing access to finance, fighting corruption and putting in place the required infrastructure as well as strengthening the institutions.