Constrained Firms, Not Subsistence Activities: Evidence on Capital Returns and Accumulation in Peruvian Microenterprises

39 Pages Posted: 6 Oct 2012

See all articles by Kristin Göbel

Kristin Göbel

affiliation not provided to SSRN

Michael Grimm

Erasmus University Rotterdam; University of Passau; IZA; DIW Berlin

Jann Lay

GIGA German Institute of Global and Area Studies; University of Goettingen

Date Written: October 6, 2012

Abstract

We investigate the returns to capital and capital accumulation using panel data of Peruvian micro enterprises (MEs). Marginal returns to capital are found to be very high at low levels of capital, but rapidly decreasing at higher levels. The dynamic analyses of capital accumulation in MEs suggest that credit constraints explain a major part of the variation in firm growth. We find a very large positive effect of household non-business wealth on capital stocks of MEs. We also show a sizable effect of risk on accumulation and pronounced interactions between wealth and risk. The presented evidence is consistent with poorly endowed entrepreneurs who operate in imperfect capital markets and a very risky environment.

Keywords: micro and small enterprises, credit constraints, risk, risk aversion, firm growth, Peru

JEL Classification: D13, D61, O12

Suggested Citation

Göbel, Kristin and Grimm, Michael and Lay, Jann, Constrained Firms, Not Subsistence Activities: Evidence on Capital Returns and Accumulation in Peruvian Microenterprises (October 6, 2012). IZA Discussion Paper No. 6866. Available at SSRN: https://ssrn.com/abstract=2158008

Kristin Göbel (Contact Author)

affiliation not provided to SSRN ( email )

No Address Available

Michael Grimm

Erasmus University Rotterdam ( email )

Kortenaerkade 12
P.O. Box 29776
The Hague, 2502LT
Netherlands

HOME PAGE: http://www.iss.nl

University of Passau ( email )

Innstrasse 29
Passau, 94032
Germany

HOME PAGE: http://www.wiwi.uni-passau.de/grimm.html

IZA ( email )

P.O. Box 7240
Bonn, D-53072
Germany

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Jann Lay

GIGA German Institute of Global and Area Studies ( email )

Neuer Jungfernstieg 21
Hamburg, DE D-20354
Germany

University of Goettingen

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

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