UNDERVALUATION AND NEW BUSINESS FORMATION IN DEVELOPING COUNTRIES

Brian Tavonga Mazorodze ()
Additional contact information
Brian Tavonga Mazorodze: School of Economic and Management Sciences, Sol Plaatje University, Kimberley, Northern Cape, South Africa

Journal of Developmental Entrepreneurship (JDE), 2023, vol. 28, issue 02, 1-20

Abstract: The widespread recognition of new business formation as a facilitator of economic development has generated interest in examining its relevant determinants. In this paper, a rudimentary framework is proposed and empirically tested in which undervaluation of the real exchange rate incentivizes the establishment of new businesses. The goal of the paper is to establish the effect of real exchange rate undervaluation on the formation of new businesses. Using a broad sample of 40 developing countries observed between 2010 and 2018, results from a fixed effects Poisson model finds the evidence supportive of our hypothesis. The results particularly confirm a positive and sizeable effect of real exchange rate undervaluation on the number of newly registered businesses. Additionally, we find this positive effect stronger in countries with reliable energy, human capital, access to finance and efficient transport systems. These findings suggest that exchange rate policies that maintain undervalued exchange rates have an important bearing on business start-ups in developing countries and more so when accompanied by policy efforts to improve human capital, access to finance, efficient transport systems and the supply of reliable energy.

Keywords: Business formation; real exchange rate undervaluation; developing countries (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S1084946723500115
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:jdexxx:v:28:y:2023:i:02:n:s1084946723500115

Ordering information: This journal article can be ordered from

DOI: 10.1142/S1084946723500115

Access Statistics for this article

Journal of Developmental Entrepreneurship (JDE) is currently edited by Peter Koveos

More articles in Journal of Developmental Entrepreneurship (JDE) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().