The Growth and Decline of Small firms In Developing Countries

Empirical work on micro and small firms has focused on developed countries. The little work that exists on developing countries is all too often based on small samples taken from ad hoc questionnaires. The census data we analyze are fairly representative of the structure of small business in India. Consistent with prior research on developed countries, size and age have a negative impact on firm growth in the majority of specifications. The decision to export is a double-edged sword – if successful it can accelerate the growth of successful firms, but it can also increase the probability of decline. While proprietary ownership results in faster growth, enterprises managed by women are less likely to grow and more likely to decline. Although many small firms are able to convert knowhow into commercial success, we find that many others do not have any technical knowledge and some are unable to use it to their benefit.