Linking entrepreneurial activity to economic meltdown in Zimbabwe

Abstract

Understanding the relationship between entrepreneurship and key macroeconomic growth indicators is critical for generating growth and development in a normal or meltdown economy. The purpose of this study is to develop a model that best describes the relationship between the economic meltdown and the growth of micro and small-scale enterprises (MSEs) in Zimbabwe and to test the presence of refugee effects. Using annual data from 1980 to 2010, a multivariate Vector Error Correction Model (VECM) with the total number of MSEs, unemployment rate, inflation rate, liquidity (proxied by money supply) and real GDP as the dependent variables was run. The main finding of this study indicates the presence of refugee effects, albeit minimal, and that the growth in MSEs was partly because of the shortage of liquidity. Secondly, the relationship between unemployment and entrepreneurship is not linear but squared and positive in both instances.