Big Constraints to Small Firms’ Growth? Business Environment and Employment Growth across Firms

Using data on more than 56,000 enterprises in 90 countries, this study finds that objective conditions in the business environment vary substantially across firms of different sizes and that there are important nonlinearities in their impact on employment growth. The study focuses on four areas: acc...

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Bibliographic Details
Published in:Economic development and cultural change 2011-04, Vol.59 (3), p.609-647
Main Authors: Aterido, Reyes, Hallward-Driemeier, Mary, Pagés, Carmen
Format: Article
Language:English
Subjects:
Business environments
Business expansion
Business structures
Capacity G310
Capital and Ownership Structure G320
Capital Budgeting
Cell growth
Commercial regulation
Corporate Finance and Governance O160
Developing countries
Economic benefits
Economic Development: Financial Markets
Economic growth
Employment
Finance
Financial investments
Financial Risk and Risk Management
Financing Policy
Firm Performance: Size, Diversification, and Scope L250
Fixed Investment and Inventory Studies
LDCs
Saving and Capital Investment
Small business
Stock shares
Studies
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Summary:Using data on more than 56,000 enterprises in 90 countries, this study finds that objective conditions in the business environment vary substantially across firms of different sizes and that there are important nonlinearities in their impact on employment growth. The study 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 (fewer 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.
ISSN:0013-0079
1539-2988
DOI:10.1086/658349