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Small–Scale Entrepreneurship and Access to Capital in Peripheral Locations: An Empirical Analysis

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  • Daniel Felsenstein
  • Aliza Fleischer

Abstract

This paper presents an analysis of a public assistance program for small–scale entrepreneurship in peripheral areas. Public assistance compensates for market inefficiencies where the decision rules of financial institutions discriminate against otherwise viable small firms in capital markets. Lending institutions perceive high risk in providing debt capital when little information is present. Using empirical data from Israel, the determinants of this risk are estimated and the role of location in creating this information asymmetry is stressed. These results empirically establish that (1) location matters in determining the risk profile of the firm, (2) locationally targeted programs can reduce the information asymmetries that make peripheral firms unattractive to lenders, and (3) these programs can also generate positive welfare effects. Finally, there is speculation on the potential role of ICT (information and communications technology) in increasing the visibility of small firms in remote locations and creating a more symmetrical flow of information.

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  • Daniel Felsenstein & Aliza Fleischer, 2002. "Small–Scale Entrepreneurship and Access to Capital in Peripheral Locations: An Empirical Analysis," Growth and Change, Wiley Blackwell, vol. 33(2), pages 196-215.
    • Handle: RePEc:bla:growch:v:33:y:2002:i:2:p:196-215
    DOI: 10.1111/0017-4815.00187
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    Cited by:

    1. Mika Haapanen & Anu Tokila & Jari Ritsilä, 2005. "When are investment subsidies crucial for investments?," ERSA conference papers ersa05p466, European Regional Science Association.

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