Capacity of innovation and entrepreneurship development in Africa: does institutional quality matter?

This paper investigates the interacting role of institutional quality in the capacity of innovation and entrepreneurship development nexus in Africa. The paper operationalises the entrepreneurship development from the perspective of new venture creation in Africa, while innovation is based on an innovation index. The paper follows the generalised method of moments (GMM) estimation approach to estimate the model using annual data from 2000 to 2021 among 54 African countries. The study also measures institutional quality using a composite index constructed from political stability, governance, and rule of law. The findings provide evidence of the relevance of institutional quality in explaining the relationship between innovation and entrepreneurship development in Africa. The effect of innovation and institutional quality on entrepreneurship is institutional contingent. The findings reveal that institutional quality is an important catalyst to deepen the relationship between innovation and entrepreneurship development. It is recommended that for African countries to speed up the spillover effect of innovation capacity on entrepreneurship development, stakeholders, especially governments, should improve institutional quality, as it actually matters in the diffusion of innovation to drive new venture creation and recomposition of existing businesses.