Firm Dynamics, Job Creation and Job Destruction in Africa: Is the Quality of Institutional Environment Relevant?

The central question we pose is: which firms are likely to create or destroy jobs and does the quality of institutional environment affect the pace of firm-level job creation or destruction? Using Enterprise Survey data for 30 African countries, we find that jobs are destroyed at almost half the rate at which they are created. Small and starter firms report higher rates of job destruction. Though services firms account for higher rates of gross job creation, they still have higher rates of gross job destruction. We use Pooled Ordinary Least Squares estimation technique and at some point, account for possible endogeneity using the Two Stage Least Squares estimation technique. Our results indicate that improving the quality of institutional environment reinforces firm-level job creation and reduces job destruction. This effect is more pronounced among firms in the manufacturing sector. Findings draw attention to the importance of the quality of institutional environment and support towards small and starter firms.