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Releasing Constraints to Growth or Pushing on a String? Policies and Performance of Mexican Micro-Firms

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  • Pablo Fajnzylber
  • William F. Maloney
  • Gabriel V. Montes-Rojas

Abstract

Using firm-level data from Mexico, this paper investigates the firm characteristics associated with participation in credit markets, access to training, tax payments and membership in business associations. We find that firms which participate in these institutions exhibit significantly higher profits. Moreover, 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. These results persist when firm characteristics that are arguably correlated with unobserved entrepreneurial ability are controlled for. Our findings suggest that the significant within-country differences in firm productivity observed in developing economies are due in part to market and government failures that limit the ability of micro-firms to reach their optimal sizes.

Suggested Citation

  • Pablo Fajnzylber & William F. Maloney & Gabriel V. Montes-Rojas, 2009. "Releasing Constraints to Growth or Pushing on a String? Policies and Performance of Mexican Micro-Firms," Journal of Development Studies, Taylor & Francis Journals, vol. 45(7), pages 1027-1047, August.
    • Handle: RePEc:taf:jdevst:v:45:y:2009:i:7:p:1027-1047
    DOI: 10.1080/00220380802264911
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    References listed on IDEAS

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    1. Abhijit V. Banerjee & Esther Duflo, 2014. "Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(2), pages 572-607.
    2. Suresh de Mel & David McKenzie & Christopher Woodruff, 2009. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 423-423.
    3. Levenson, Alec R. & Maloney, William F., 1998. "The informal sector, firm dynamics, and institutional participation," Policy Research Working Paper Series 1988, The World Bank.
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