The Determinants of Non-Farm Micro and Small Enterprise Employment and Financial Performance in Ghana

Abstract

Micro and small enterprises play a significant role in the socio-economic development of many countries over the world. In Ghana, the bulk of these enterprises are in the informal sector providing employment and income, especially for the poorest members of society. Using data from the EGC/ISSER survey in 2009/10, the study employed a probit regression model in examining the determinants of individual participation in the non-farm sector and then estimated the intensity of participation using a truncated regression model. In examining the effects of firm-specific and non-firm factors on the financial performance of enterprises, the study employed quantile regressions.The study used the Sharpe Ratio in adjusting for risks in comparing the financial performance of male-owned and-female-owned enterprises. The results indicate that individual and household factors such as gender,household head, spouse of the household head, formal education, age, size of landholding,access to credit, electricity and mobile phones shaped the participation of the individual in non-farm self-employment and wage- employment. Enterprises located in the Savannah and Forest zones were less likely to participate in non-farm self-and wage-employment as compared to those located in the Coastal zone.The study found that firm-specific resources dominated market/industry factors in explaining enterprise financial performance. When risks are not adjusted for, female-owned enterprises underperform male-owned ones and when risks are adjusted for, women performed no differently from men. The study recommends technical education and formal registration of enterprises. The study recommends that deliberate policies should focus on addressing critical factors such as access to credit, mobile phone, electricity and education, which could serve as constraints to participation in the non-farm sector. The study also recommends a reorientation of the mindset regarding female-underperformance hypothesis.