Big Constraints to Small Firms' Growth? Business Environment and Employment Growth Across Firms

44 Pages Posted: 20 Apr 2016

See all articles by Reyes Aterido

Reyes Aterido

World Bank

Mary Hallward-Driemeier

World Bank - Research Department; World Bank - Development Research Group (DECRG)

Carmen Pages

affiliation not provided to SSRN

Date Written: August 1, 2009

Abstract

Using data on more than 56,000 enterprises in 90 countries, this paper finds that objective conditions in the business environment vary substantially across firms of different sizes and that there are important non-linearities in their impact on employment growth. The paper focuses on four areas: access to finance, business regulations, corruption, and infrastructure. The results, particularly on the impacts of finance and corruption on growth, depend on whether and how the analysis accounts for the possible endogeneity of the business environment. Controlling for endogeneity revises the finding that small firms benefit most from access to finance, particularly for sources of finance associated with investment and growth. The findings are also sensitive to how "small" is defined. Differentiating micro (less than 10 employees) from other small firms shows that, while small firms can be disadvantaged in such an environment, micro firms tend to be proportionally less affected by a weak business climate - and, on occasion, it can help them to grow. Overall, allowing different size classifications provides insights into the impact of the business environment that are lost in more aggregate analyses.

Keywords: Microfinance, Private Participation in Infrastructure, Small Scale Enterprise, Access to Finance, Labor Policies

Suggested Citation

Aterido, Reyes and Hallward-Driemeier, Mary and Pages, Carmen, Big Constraints to Small Firms' Growth? Business Environment and Employment Growth Across Firms (August 1, 2009). World Bank Policy Research Working Paper No. 5032, Available at SSRN: https://ssrn.com/abstract=1471130

Reyes Aterido (Contact Author)

World Bank ( email )

Washington, DC 20433
United States

Mary Hallward-Driemeier

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/mhallwarddriemeier

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Carmen Pages

affiliation not provided to SSRN

No Address Available

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