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

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  • J. David Brown

    (Heriot-Watt University and CEU Labor Project)

  • John S. Earle

    (W.E. Upjohn Institute for Employment Research and Central European University)

  • Dana Lup

    (CEU Labor Project and University of Chicago)

Abstract

Although the development of a new private sector is generally considered crucial to economic transition and development, there has been little empirical research on the determinants of startup firm growth. This paper uses panel data techniques to analyze a survey of 297 new s small enterprises in Romania containing detailed information from the startup date through 2001. We find strong evidence that access to external finance (loans) increases the growth of both employment and sales. Taxes appear to constrain growth. There is some evidence that entrepreneurial skills increase growth, but only weak evidence for the effectiveness of technical assistance, and only when it is provided by foreign partners or international agencies. A wide variety of alternative measures of the business environment (contract enforcement, property rights, and corruption) are tested, but are found to have little or no association with firm growth.

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Bibliographic Info

Paper provided by W.E. Upjohn Institute for Employment Research in its series Upjohn Working Papers and Journal Articles with number 03-94.

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Date of creation: May 2003
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Handle: RePEc:upj:weupjo:03-94

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Keywords: Earle; Romania; small; firms; growth; Upjohn;

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Cited by:
  1. 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.
  2. Núria Rodríguez-Planas, 2007. "What Works Best For Getting the Unemployed Back to Work: Employment Services or Small-Business Assistance Programs? Evidence from Romania," UFAE and IAE Working Papers 712.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  3. Moog, Petra & Kay, Rosemarie & Schlömer-Laufen, Nadine & Schlepphorst, Susanne, 2012. "Unternehmensnachfolgen in Deutschland: Aktuelle Trends," IfM-Materialien 216, Institut für Mittelstandsforschung (IfM) Bonn.
  4. 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.
  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. 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.
  7. Wolter, Hans-Jürgen, 2010. "Informationsasymmetrien in der familienexternen Nachfolge und ihre Überwindung," IfM-Materialien 191, Institut für Mittelstandsforschung (IfM) Bonn.
  8. 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.
  9. Jahangir Aziz & Li Cui, 2007. "Explaining China's Low Consumption: The Neglected Role of Household Income," IMF Working Papers 07/181, International Monetary Fund.

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