Entrepreneurship and income inequality in southern Ethiopia

Abstract

This paper uses inequality decomposition techniques in order to analyse the consequences of entrepreneurial activities to household income inequality in southern Ethiopia. A uniform increase in entrepreneurial income reduces per capita household income inequality. This implies that encouraging rural entrepreneurship may be favourable for both income growth and income distribution. Such policies could be particularly successful if directed at the low-income, low-wealth, and relatively uneducated segments of the society.

Does income inequality sand or grease the wheels of entrepreneurial activity? International evidence

“…Researchers have considered numerous influences on entrepreneurship, with varying significance (Acs & Audretsch, 2005; Cebula et al, 2015). The effect of income inequality has garnered more recent attention in the income inequality‐entrepreneurship nexus (see Halvarsson et al, 2018; Kimhi, 2010; Ragoubi & El Harbi, 2018).…”

“…Despite the range of determinants of entrepreneurship considered in the literature (for overviews of the literature, see Acs & Audretsch, 2005; Cebula et al, 2015), very little attention is paid to the role of income inequality. In a noteworthy exception, Kimhi (2010), for Ethiopia, studies the causality from entrepreneurship to income inequality (also see Halvarsson et al, 2018). We study the other direction (i.e., causality from income inequality to entrepreneurship), while accounting for the possibility of reverse causation (Section 4.2).…”

Causal Relationship between Entrepreneurship Povertyand Income Inequality in Thailand

“…By using the inequality decomposition techniques, he has given the conclusion of his study about entrepreneurship and income inequality in Southern Ethiopia that a uniform increase in entrepreneurial income reduces per capita household income inequality but increasing the number of entrepreneurs does not affect income inequality. Moreover, using supporting policy to encourage entrepreneurship, to reducing inequality could be success in the society that low income, low wealth and relatively uneducated [26]. This is supported by Quadrini [27], Meh [28] and Cagetti and De Nardi [29] that entrepreneurship leads to wealth concentration due to the higher saving rate of entrepreneurs [27].…”

“…Kimhi [26] mentioned in his study that the conventional wisdom has been to associate entrepreneurship with higher inequality because of the risk embodied in it. By using the inequality decomposition techniques, he has given the conclusion of his study about entrepreneurship and income inequality in Southern Ethiopia that a uniform increase in entrepreneurial income reduces per capita household income inequality but increasing the number of entrepreneurs does not affect income inequality.…”

Unlocking Productive Entrepreneurship in Ethiopia: Which Incentives Matter?

“…In addition to carrying out new empirical estimates of the informal sector in Ethiopia, the theoretical framework in this paper models: (i) workers' decision to acquire skills; (ii) entrepreneurs' decision to open their firm in either the formal or the informal sector; and (iii) cost-benefit comparison of subsidizing entrepreneurs' search and subsidizing wages of skilled workers.5 This paper focuses on urban labor markets. Utilizing data from southern Ethiopia,Kimhi (2010) shows that encouraging rural entrepreneurship may be favorable for both income growth and distribution.6 The private sector includes all agents in the economy not formally classified as in the public sector that is agents involved in the government, state-owned enterprises or parastatals, and independent public agencies.…”