What Makes Small Firms Grow? Finance, Human Capital, Technical Assistance, and the Business Environment in Romania

39 Pages Posted: 13 Oct 2004

See all articles by J. David Brown

J. David Brown

US Census Bureau Center for Economic Studies; IZA Institute of Labor Economics

John S. Earle

George Mason University - Schar School of Policy and Government; IZA Institute of Labor Economics

Dana Lup

CEU Labor Project

Date Written: October 2004

Abstract

Although the development of a new private sector is generally considered crucial to economic transition, there has been rather little empirical research on the determinants of startup firm growth. This paper uses panel data techniques to analyze a survey of 297 new small enterprises in Romania containing detailed information from the startup date through 2001. We find strong evidence that access to external credit increases the growth of both employment and sales. Taxes appear to constrain growth. The data suggest that entrepreneurial skills have little independent effect on growth, once demand conditions are taken into account. The evidence for the effectiveness of technical assistance is weak: only assistance provided by foreign partners yields a positive effect. A wide variety of alternative measures of the business environment (contract enforcement, property rights, and corruption) are tested, but none are found to have any clear association with firm growth.

Keywords: Small Firms, Entrepreneurship, Microfinance, Business Environment, and Romania

JEL Classification: M13, O16, O19, P26

Suggested Citation

Brown, J. David and Earle, John S. and Lup, Dana, What Makes Small Firms Grow? Finance, Human Capital, Technical Assistance, and the Business Environment in Romania (October 2004). IZA Discussion Paper No. 1343; Upjohn Institute Staff Working Paper No. 03-94. Available at SSRN: https://ssrn.com/abstract=425421

J. David Brown

US Census Bureau Center for Economic Studies ( email )

4600 Silver Hill Road
Washington, DC 20233
United States
301-763-8769 (Phone)
301-763-5935 (Fax)

IZA Institute of Labor Economics

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

John S. Earle (Contact Author)

George Mason University - Schar School of Policy and Government ( email )

3351 Fairfax Drive
MS 3B1
Arlington, VA 22201
United States
703-993-8023 (Phone)

HOME PAGE: http://earle.gmu.edu

IZA Institute of Labor Economics

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

Dana Lup

CEU Labor Project

Budapest, 1051
Hungary

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