Human Capital Investment, New Business Creation and Economic Growth in Sub-Saharan Africa

Abstract

This paper investigates if a level of human capital investment exists that would, possibly, trigger a positive impact of new business creation on economic growth in sub-Saharan Africa (SSA). To do this, we apply the dynamic panel threshold technique to analyse a panel of 19 SSA countries for the period 2006-2020. Using the World Bank’s new business density measure as a proxy for new business creation, we find a negative relation between new business creation and economic growth for SSA countries with low levels of human capital investment. However, we also report that new business creation positively affects economic growth if human capital investment exceeds a certain (estimated) threshold value. This evidence suggests that high levels of human capital in SSA come along with a positive impact of new business creation on growth. Using data from SSA to study the dynamics of the new business creation and economic growth nexus allows us to highlight that investment in human capital accumulation is an important conduit through which a positive impact of new business creation on economic growth can be realised.