Releasing Constraints to Growth or Pushing on a String? The Impact of Credit, Training, Business Associations, and Taxes on the Performance of Mexican Micro-Firms

45 Pages Posted: 17 Jan 2006

See all articles by Pablo Fajnzylber

Pablo Fajnzylber

World Bank - Economic Development Institute; Federal University of Minas Gerais

William F. Maloney

World Bank - Poverty and Economic Management Unit; IZA Institute of Labor Economics; World Bank - Development Research Group (DECRG)

Gabriel V. Montes Rojas

University of Illinois at Urbana-Champaign

Date Written: December 2005

Abstract

The authors employ propensity score matching and a traditional control function approach to examine the impact of participation in various societal institutions on microfirm performance in Mexico. They find that firms that participate in credit markets, receive training, pay taxes, and belong to business associations exhibit significantly higher profits, even after controlling for the various factors that drive participation in those institutions. They also find that firms that borrow from formal or informal sources and those that pay taxes are significantly more likely to stay in business, but firms that received credit exhibit lower rates of income growth. Overall, the results suggest that even if the best performing micro-firms are more likely to be selected into participating in societal institutions, causality also runs in the opposite direction. In particular, increases in strictly or broadly defined formality have the potential for increasing profits and survival rates, and appear to bring micro-firms closer to their optimal sizes.

Suggested Citation

Fajnzylber, Pablo R. and Maloney, William F. and Montes Rojas, Gabriel V., Releasing Constraints to Growth or Pushing on a String? The Impact of Credit, Training, Business Associations, and Taxes on the Performance of Mexican Micro-Firms (December 2005). World Bank Policy Research Working Paper No. 3807. Available at SSRN: https://ssrn.com/abstract=875639

Pablo R. Fajnzylber (Contact Author)

World Bank - Economic Development Institute ( email )

1818 H Street
Washington, DC 20433
United States

Federal University of Minas Gerais ( email )

Rua Curitiba, 832
CEDEPLAR 9 Andar
MG30170-120 Belo Horizonte
Brazil
+55 31 32799162 (Phone)

William F. Maloney

World Bank - Poverty and Economic Management Unit ( email )

1818 H Street NW
Washington, DC 20433
United States
202-473-6340 (Phone)
202-522-0054 (Fax)

IZA Institute of Labor Economics

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

World Bank - Development Research Group (DECRG)

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

Gabriel V. Montes Rojas

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

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