Preparing fertile ground: How does the quality of business environments affect MSE growth?

62 Pages Posted: 11 Mar 2020 Last revised: 22 Sep 2022

See all articles by Jonathan Fu

Jonathan Fu

University of Zurich - Department of Banking and Finance; Center for Sustainable Finance and Private Wealth

Annette Krauss

University of Zurich - Department of Banking and Finance / CSP

Date Written: April 7, 2022

Abstract

We study how the quality of local business environments help explain growth outcomes of micro and small enterprise microfinance clients by drawing on long-term nationwide administrative data and a policy shock in Cambodia. The staggered launch of Special Economic Zones, which we link to positive shocks to the business environment on both the demand side and supply side, leads to significantly increased employment in MSEs located in these SEZs, compared to enterprises in contextually similar districts but that are unexposed to an SEZ. Key channels explaining the improved growth outcomes include expanded access to external markets for the enterprises’ goods and services, more dynamic labour environments, and improved credit terms and conditions. To broaden the relevance of our findings, we combine data from prominent empirical studies on microfinance and demonstrate how related business conditions from the enterprise growth literature help explain differences in client business outcomes found in their results. Policy implications are that a key segment of microfinance borrowers can significantly benefit from opportunities provided by local business environments and that governments and lenders can play active roles in facilitating improved outcomes for their MSEs.

Keywords: enterprise growth, microfinance, business environments, policy shock

JEL Classification: D22, G21, O12, R1

Suggested Citation

Fu, Jonathan and Krauss, Annette, Preparing fertile ground: How does the quality of business environments affect MSE growth? (April 7, 2022). Available at SSRN: https://ssrn.com/abstract=3532466 or http://dx.doi.org/10.2139/ssrn.3532466

Jonathan Fu (Contact Author)

University of Zurich - Department of Banking and Finance; Center for Sustainable Finance and Private Wealth ( email )

Plattenstrasse 32
Zürich, CH-8032
Switzerland

HOME PAGE: http://https://www.bf.uzh.ch/de/persons/fu-jonathan

Annette Krauss

University of Zurich - Department of Banking and Finance / CSP ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

HOME PAGE: http://www.bf.uzh.ch

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