An Analysis of Discouraged Small Businesses: An International Perspective

Abstract

We use a unique firm-level survey database compiled by the World Bank in order to examine the drivers of discouraged small businesses in various economics around the world. We find that level of competition and the relationships with banks and other financial institutions have significant impact on the probability of a firm to be discouraged. We also find that there are significant differences among discouraged firms in relatively developed economies and those in relatively underdeveloped economies. An increase in firm size and having relationships with a greater number of banks appear to decrease the likelihood of being discouraged among firms in underdeveloped economies. Having a greater number of competitors increases the probability of being discouraged among firms in underdeveloped economies. Finally, higher growth rate countries have a lower proportion of discouraged borrowers overall.

Keywords: discouraged borrowers, relationships, international, world bank, competition, firm size, underdeveloped, emerging

JEL Classification: F30, F34