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What Makes Small Firms Grow? Finance, Human Capital, Technical Assistance, and the Business Environment in Romania

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Author Info

  • Brown, J. David

    ()
    (U.S. Census Bureau)

  • Earle, John S.

    ()
    (George Mason University)

  • Lup, Dana

    (Central European University, Budapest)

Abstract

Although the development of a new private sector is generally considered crucial to economic transition, there has been rather little empirical research on the determinants of startup firm growth. This paper uses panel data techniques to analyze a survey of 297 new small enterprises in Romania containing detailed information from the startup date through 2001. We find strong evidence that access to external credit increases the growth of both employment and sales. Taxes appear to constrain growth. The data suggest that entrepreneurial skills have little independent effect on growth, once demand conditions are taken into account. The evidence for the effectiveness of technical assistance is weak: only assistance provided by foreign partners yields a positive effect. A wide variety of alternative measures of the business environment (contract enforcement, property rights, and corruption) are tested, but none are found to have any clear association with firm growth.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1343.

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Length: 39 pages
Date of creation: Oct 2004
Date of revision:
Publication status: published in: Economic Development and Cultural Change, 2005, 54 (1), 33-70
Handle: RePEc:iza:izadps:dp1343

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Keywords: business environment; small firms; entrepreneurship; microfinance; Romania;

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References

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  1. Earle, John S. & Sakova, Zuzana, 2000. "Business start-ups or disguised unemployment? Evidence on the character of self-employment from transition economies," Labour Economics, Elsevier, vol. 7(5), pages 575-601, September.
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  7. Bilsen, Valentijn & Konings, Jozef, 1998. "Job Creation, Job Destruction, and Growth of Newly Established, Privatized, and State-Owned Enterprises in Transition Economies: Survey Evidence from Bulgaria, Hungary, and Romania," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 429-445, September.
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Citations

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Cited by:
  1. Levering, Britta & Schlömer-Laufen, Nadine, 2012. "Öffentliche Förderung von Unternehmensübernahmen: Notwendigkeit und Ausgestaltung," IfM-Materialien 219, Institut für Mittelstandsforschung (IfM) Bonn.
  2. Rodríguez-Planas, Núria, 2007. "What Works Best for Getting the Unemployed Back to Work: Employment Services or Small-Business Assistance Programmes? Evidence from Romania," IZA Discussion Papers 3051, Institute for the Study of Labor (IZA).
  3. Margolis, David N., 2014. "By Choice and by Necessity: Entrepreneurship and Self-Employment in the Developing World," IZA Discussion Papers 8273, Institute for the Study of Labor (IZA).
  4. Nofsinger, John R. & Wang, Weicheng, 2011. "Determinants of start-up firm external financing worldwide," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2282-2294, September.
  5. Bah, El-hadj & Brada, Josef C. & Yigit, Taner, 2011. "With a little help from our friends: The effect of USAID assistance on SME growth in a transition economy," Journal of Comparative Economics, Elsevier, vol. 39(2), pages 205-220, June.
  6. Brown, J. David & Earle, John S., 2006. "The microeconomics of creating productive jobs : a synthesis of firm-level studies in transition economies," Policy Research Working Paper Series 3886, The World Bank.
  7. Abiola Babajide Ph.D, 2012. "Effects of Microfinance on Micro and Small Enterprises (MSEs) Growth in Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(3), pages 463-477, July.
  8. Moog, Petra & Kay, Rosemarie & Schlömer-Laufen, Nadine & Schlepphorst, Susanne, 2012. "Unternehmensnachfolgen in Deutschland: Aktuelle Trends," IfM-Materialien 216, Institut für Mittelstandsforschung (IfM) Bonn.
  9. Jahangir Aziz & Li Cui, 2007. "Explaining China's Low Consumption," IMF Working Papers 07/181, International Monetary Fund.
  10. Wolter, Hans-Jürgen, 2010. "Informationsasymmetrien in der familienexternen Nachfolge und ihre Überwindung," IfM-Materialien 191, Institut für Mittelstandsforschung (IfM) Bonn.
  11. Toledo, Arcelia & Hernández, José de la Paz & Griffin, Denis, 2010. "Incentives and the growth of Oaxacan subsistence businesses," Journal of Business Research, Elsevier, vol. 63(6), pages 630-638, June.

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