The Link between Venture Capital Supply Factors and Economic Development in South Africa

Abstract

The purpose of this paper is to provide a new theoretical model for the factors that influence the supply of venture capital investment in South Africa. Based on extant literature, the study puts forward a tentative framework to explain the link between venture capital supply factors and economic development. To this point, the paper has established that there is a link between venture capital supply and economic development and the link is mediated by formal job creation in the MSME sector. The framework depicted in Figure 4 shows three key determinants of venture capital supply including the MSME density, the extent to which industrialisation has taken place and the share of natural resource contribution to GDP. While the utility of the framework is limited without empirical evidence, the study draws attention to the need of the South African economy to find mechanisms of increasing formal job creation in the small and medium enterprise sector while simultaneously focusing on increasing the rate of industrialising the economy.

DOI: 10.5901/mjss.2014.v5n9p18