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Who are the microenterprise owners ? Evidence from Sri Lanka on Tokman v. de Soto

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  • de Mel, Suresh
  • McKenzie, David
  • Woodruff, Christopher

Abstract

Is the vast army of the self-employed in low income countries a source of employment generation? This paper uses data from surveys in Sri Lanka to compare the characteristics of own account workers (non-employers) with wage workers and with owners of larger firms. The authors use a rich set of measures of background, ability, and attitudes, including lottery experiments measuring risk attitudes. Consistent with the International Labor Organization's views of the self employed (represented by Tokman), the analysis finds that two-thirds to three-quarters of the own account workers have characteristics which are more like wage workers than larger firm owners. This suggests the majority of the own account workers are unlikely to become employers. Using a two and a half year panel of enterprises, the authors show that the minority of own account workers who are more like larger firm owners are more likely to expand by adding paid employees. The results suggest that finance is not the sole constraint to growth of microenterprises, and provides an explanation for the low rates of growth of enterprises supported by microlending.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4635.

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Date of creation: 01 May 2008
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Handle: RePEc:wbk:wbrwps:4635

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Keywords: Labor Markets; Tertiary Education; Work&Working Conditions; Microfinance;

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  1. Bruhn, Miriam, 2008. "License to sell : the effect of business registration reform on entrepreneurial activity in Mexico," Policy Research Working Paper Series 4538, The World Bank.
  2. Bosch, Mariano & Goni, Edwin & Maloney, William F., 2007. "The Determinants of Rising Informality in Brazil: Evidence from Gross Worker Flows," IZA Discussion Papers 2970, Institute for the Study of Labor (IZA).
  3. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," IZA Discussion Papers 2934, Institute for the Study of Labor (IZA).
  4. Victor E. Tokman, 2007. "Modernizing the informal sector," Working Papers, United Nations, Department of Economics and Social Affairs 42, United Nations, Department of Economics and Social Affairs.
  5. Bosch, Mariano & Maloney, William F., 2007. "Comparative Analysis of Labor Market Dynamics Using Markov Processes: An Application to Informality," IZA Discussion Papers 3038, Institute for the Study of Labor (IZA).
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  7. Landier, Augustin & Thesmar, David, 2003. "Financial Contracting with Optimistic Entrepreneurs: Theory and Evidence," CEPR Discussion Papers 3971, C.E.P.R. Discussion Papers.
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  11. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
  12. Javier Miranda & Alfred Nucci & Steven J. Davis & John Haltiwanger & Ron S. Jarmin & C.J. Krizan & Kristin Sandusky, 2006. "Measuring the Dynamics of Young and Small Businesses: Integrating the Employer and Nonemployer Universes," Working Papers 06-04, Center for Economic Studies, U.S. Census Bureau.
  13. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(4), pages 808-27, August.
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  16. Thomas Dunn & Douglas Holtz-Eakin, 1996. "Financial Capital, Human Capital, and the Transition to Self-Employment:Evidence from Intergenerational Links," NBER Working Papers 5622, National Bureau of Economic Research, Inc.
  17. Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," World Bank Economic Review, World Bank Group, World Bank Group, vol. 13(2), pages 275-302, May.
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Citations

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Cited by:
  1. Camilo Mondragón-Vélez & Ximena Peña, 2010. "Business Ownership and Self-Employment in Developing Economies: The Colombian Case," NBER Chapters, in: International Differences in Entrepreneurship, pages 89-127 National Bureau of Economic Research, Inc.
  2. Hasan, Rana & Jandoc, Karl Robert L., 2009. "Quality of Jobs in the Philippines: Comparing Self-Employment with Wage Employment," ADB Economics Working Paper Series 148, Asian Development Bank.
  3. Bennett, John & Rablen, Matthew D., 2012. "Self-Employment, Wage Employment and Informality in a Developing Economy," IZA Discussion Papers 6406, Institute for the Study of Labor (IZA).
  4. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2009. "Innovative Firms or Innovative Owners? Determinants of Innovation in Micro, Small, and Medium Enterprises," IZA Discussion Papers 3962, Institute for the Study of Labor (IZA).
  5. Melanie Khamis, 2012. "A Note On Informality In The Labour Market," Journal of International Development, John Wiley & Sons, Ltd., vol. 24(7), pages 894-908, October.
  6. Dang, Hai-Anh & Lanjouw, Peter & Luoto, Jill & McKenzie, David, 2011. "Using repeated cross-sections to explore movements in and out of poverty," Policy Research Working Paper Series 5550, The World Bank.
  7. 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, World Bank Group, vol. 25(2), pages 209-233, August.
  8. Xu, Lixin Colin, 2010. "The effects of business environments on development : surveying new firm-level evidence," Policy Research Working Paper Series 5402, The World Bank.
  9. Bruhn, Miriam, 2012. "A tale of two species : revisiting the effect of registration reform on informal business owners in Mexico," Policy Research Working Paper Series 5971, The World Bank.
  10. Antoinette Schoar, 2010. "The Divide between Subsistence and Transformational Entrepreneurship," NBER Chapters, in: Innovation Policy and the Economy, Volume 10, pages 57-81 National Bureau of Economic Research, Inc.
  11. Silvia Ardagna & Annamaria Lusardi, 2009. "Where does regulation hurt? Evidence from new businesses across countries," NBER Working Papers 14747, National Bureau of Economic Research, Inc.
  12. Silvia Ardagna & Annamaria Lusardi, 2010. "Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints," NBER Chapters, in: International Differences in Entrepreneurship, pages 17-62 National Bureau of Economic Research, Inc.
  13. Akay, Alpaslan & Khamis, Melanie, 2011. "The Persistence of Informality: Evidence from Panel Data," IZA Discussion Papers 6163, Institute for the Study of Labor (IZA).
  14. Annamaria Lusardi, 2008. "Financial Literacy: An Essential Tool for Informed Consumer Choice?," NBER Working Papers 14084, National Bureau of Economic Research, Inc.
  15. Drugov, Mikhail & Macchiavello, Rocco, 2008. "Learning and Microlending," CEPR Discussion Papers 7011, C.E.P.R. Discussion Papers.
  16. Silvia Ardagna & Annamaria Lusardi, 2008. "Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints," NBER Working Papers 14012, National Bureau of Economic Research, Inc.

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