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Start‐up Capital, Microenterprises and Technical Efficiency in Mexico

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  • Fausto Hernández‐Trillo
  • José A. Pagán
  • Julia Paxton

Abstract

Access to adequate start‐up capital has been identified as an important deterrent to microenteprise development and growth. Using firm level data from Mexico's National Survey of Microenterprises, we estimate a stochastic frontier production function with inefficiency effects related to the main sources of start‐up capital. Microenterprises utilizing bank loans, carryover business capital, moneylenders and credit from clients and suppliers are more technically efficient than those relying on family, friends and on own financial sources. Bank loans led to the highest degree of technical efficiency, indicating a well‐functioning screening process despite information asymmetries. Banks tend to offer the largest average loan size with the longest terms which are significant factors in allowing microentrepreneurs to overcome financing constraints.

Suggested Citation

  • Fausto Hernández‐Trillo & José A. Pagán & Julia Paxton, 2005. "Start‐up Capital, Microenterprises and Technical Efficiency in Mexico," Review of Development Economics, Wiley Blackwell, vol. 9(3), pages 434-447, August.
    • Handle: RePEc:bla:rdevec:v:9:y:2005:i:3:p:434-447
    DOI: 10.1111/j.1467-9361.2005.00286.x
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    References listed on IDEAS

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    1. Ijaz Nabi, 1989. "Investment in Segmented Capital Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(3), pages 453-462.
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    Cited by:

    1. Steven B. Caudill & Daniel M. Gropper & Valentina Hartarska, 2009. "Which Microfinance Institutions Are Becoming More Cost Effective with Time? Evidence from a Mixture Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(4), pages 651-672, June.
    2. Shahidur R. Khandker & Hussain A. Samad & Rubaba Ali, 2013. "Does Access to Finance Matter in Microenterprise Growth? Evidence from Bangladesh," Working Papers 15, Institute of Microfinance (InM).
    3. Beck, Thorsten & Lu, Liping & Yang, Rudai, 2015. "Finance and Growth for Microenterprises: Evidence from Rural China," World Development, Elsevier, vol. 67(C), pages 38-56.
    4. Sasan Bakhtiari & Robert Breunig & Lisa Magnani & Jacquelyn Zhang, 2020. "Financial Constraints and Small and Medium Enterprises: A Review," The Economic Record, The Economic Society of Australia, vol. 96(315), pages 506-523, December.
    5. Huang, Zuhui & Zhang, Xiaobo & Zhu, Yunwei, 2008. "The role of clustering in rural industrialization: A case study of the footwear industry in Wenzhou," China Economic Review, Elsevier, vol. 19(3), pages 409-420, September.
    6. Antonio Báez-Morales, 2015. "“Differences in efficiency between Formal and Informal Micro Firms in Mexico”," IREA Working Papers 201516, University of Barcelona, Research Institute of Applied Economics, revised Jun 2015.
    7. Alhammadi, Abdulnaser & Shahadan, Faridah, 2014. "The Determinants of Growth Performance of Small Services Enterprises in Yemen," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 48(1), pages 35-48.
    8. Merima Ali & Jack Peerlings & Xiaobo Zhang, 2014. "Clustering as an organizational response to capital market inefficiency: evidence from microenterprises in Ethiopia," Small Business Economics, Springer, vol. 43(3), pages 697-709, October.
    9. Raccanello, Kristiano, 2016. "Do Microenterprises’ size and status matter to access informal finance?./ ¿El tamaño y el registro de las microempresas permite el acceso a los mercados financieros informales?," Panorama Económico, Escuela Superior de Economía, Instituto Politécnico Nacional, vol. 12(23), pages 123-152, Segundo s.
    10. Rolando I. Valdez & Eder J. Noda Ramírez, 2018. "Determinantes del aumento o disminución de empresas: Análisis por entidad federativa y estrato de edad. (The Determinants of the Increase and Decrease in the Number of Firms: An Analysis by State and ," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 77-98, May.
    11. Nichter, Simeon & Goldmark, Lara, 2009. "Small Firm Growth in Developing Countries," World Development, Elsevier, vol. 37(9), pages 1453-1464, September.
    12. Lopez-Martin, Bernabe, 2019. "Informal Sector Misallocation," Macroeconomic Dynamics, Cambridge University Press, vol. 23(8), pages 3065-3098, December.
    13. Rajesh Natarajan & Malathy Duraisamy, 2008. "Efficiency and productivity in the Indian unorganized manufacturing sector: did reforms matter?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 55(4), pages 373-399, December.
    14. Idrees Khawaja & Nasir Iqbal, 2019. "Determinants of Expansion of Micro and Small Firms and State of Entrepreneurship in Pakistan," PIDE-Working Papers 2019:160, Pakistan Institute of Development Economics.
    15. Jeffrey Nugent & Grigor Sukiassyan, 2009. "Small Firms and Formality: The Influence of Judicial Efficiency and Regulation Costs," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(4), pages 349-371, June.

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