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Releasing constraints to growth or pushing on a string ? the impact of credit, training, business associations, and taxes on the performance of Mexican micro-firms

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Author Info

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

Abstract

The authors employ propensity score matching and a traditional control function approach to examine the impact of participation in various societal institutions on microfirm performance in Mexico. They find that firms that participate in credit markets, receive training,pay taxes, and belong to business associations exhibit significantly higher profits, even after controlling for the various factors that drive participation in those institutions. They also find that 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. Overall, the results suggest that even if the best performing micro-firms are more likely to be selected into participating in societal institutions, causality also runs in the opposite direction. In particular, increases in strictly or broadly defined formality have the potential for increasing profits and survival rates, and appear to bring micro-firms closer to their optimal sizes.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3807.

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Date of creation: 01 Jan 2006
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Handle: RePEc:wbk:wbrwps:3807

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Keywords: Economic Theory&Research; Science Education; Scientific Research&Science Parks; Investment and Investment Climate; Educational Sciences;

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Citations

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Cited by:
  1. McKenzie, David & Seynabou Sakho, Yaye, 2010. "Does it pay firms to register for taxes? The impact of formality on firm profitability," Journal of Development Economics, Elsevier, vol. 91(1), pages 15-24, January.
  2. J. David Brown & Julie L. Hotchkiss & Myriam Quispe-Agnoli, 2013. "Does Employing Undocumented Workers Give Firms A Competitive Advantage?," Journal of Regional Science, Wiley Blackwell, vol. 53(1), pages 158-170, 02.
  3. Erol Taymaz, 2009. "Informality and Productivity: Productivity Differentials between Formal and Informal Firms in Turkey," ERC Working Papers 0901, ERC - Economic Research Center, Middle East Technical University, revised Mar 2009.
  4. World Bank, 2009. "Mexico - Improving Productivity for the Urban Poor," World Bank Other Operational Studies 3047, The World Bank.
  5. World Bank, 2009. "Increasing Formality and Productivity of Bolivian Firms," World Bank Publications, The World Bank, number 2675, October.
  6. Zenou, Yves, 2008. "Job search and mobility in developing countries. Theory and policy implications," Journal of Development Economics, Elsevier, vol. 86(2), pages 336-355, June.
  7. Gatti, Roberta & Honorati, Maddalena, 2007. "Informality among Formal Firms: Firm-level, Cross-country Evidence on Tax Compliance and Access to Credit," CEPR Discussion Papers 6597, C.E.P.R. Discussion Papers.
  8. David McKenzie, 2010. "Impact Assessments in Finance and Private Sector Development: What Have We Learned and What Should We Learn?," World Bank Research Observer, World Bank Group, vol. 25(2), pages 209-233, August.
  9. World Bank, 2008. "Bolivia : Policies for Increasing Firms’ Formality and Productivity," World Bank Other Operational Studies 8003, The World Bank.
  10. 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.
  11. Junko Koeda & Era Dabla-Norris, 2008. "Informality and Bank Credit," IMF Working Papers 08/94, International Monetary Fund.
  12. Jeffrey Nugent & Grigor Sukiassyan, 2009. "Small Firms and Formality: The Influence of Judicial Efficiency and Regulation Costs," Review of Industrial Organization, Springer, vol. 34(4), pages 349-371, June.

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