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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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References

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  1. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(2), pages 319-347, April.
  2. 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.
  3. Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, Elsevier, vol. 2(2), pages 165-187, June.
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  6. Annamaria Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," CeRP Working Papers 46, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  7. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 16(1), pages 26-60, January.
  8. 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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  10. Bosch, Mariano & Maloney, William, 2007. "Comparative analysis of labor market dynamics using markov processes : an application to informality," Policy Research Working Paper Series 4429, The World Bank.
  11. Simeon Djankov & Edward Miguel & Yingyi Qian & Gérard Roland & Ekaterina Zhuravskaya, 2005. "Who are Russia's Entrepreneurs?," Journal of the European Economic Association, MIT Press, MIT Press, vol. 3(2-3), pages 587-597, 04/05.
  12. 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).
  13. Bosch, Mariano & Goni, Edwin & Maloney, William, 2007. "The determinants of rising informality in Brazil : Evidence from gross worker flows," Policy Research Working Paper Series 4375, The World Bank.
  14. 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.
  15. 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.
  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. Landier, Augustin & Thesmar, David, 2003. "Financial Contracting with Optimistic Entrepreneurs: Theory and Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3971, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. John Bennett & Matthew Rablen, 2012. "Self-Employment, Wage Employment and Informality in a Developing Economy," CEDI Discussion Paper Series, Centre for Economic Development and Institutions(CEDI), Brunel University 12-02, Centre for Economic Development and Institutions(CEDI), Brunel University.
  2. Khamis, Melanie, 2009. "A Note on Informality in the Labor Market," IZA Discussion Papers 4676, Institute for the Study of Labor (IZA).
  3. 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.
  4. 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.
  5. Ximena Peña Parga & Camilo Mondragón-Vélez, 2008. "Business Ownership and Self-Employment in Developing Economies: The Colombian Case," DOCUMENTOS CEDE, UNIVERSIDAD DE LOS ANDES-CEDE 004672, UNIVERSIDAD DE LOS ANDES-CEDE.
  6. 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.
  7. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2009. "Innovative firms or innovative owners ? determinants of innovation in micro, small, and medium enterprises," Policy Research Working Paper Series 4934, The World Bank.
  8. 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.
  9. McKenzie, David, 2009. "Impact assessments in finance and private sector development : what have we learned and what should we learn ?," Policy Research Working Paper Series 4944, 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. Drugov, Mikhail & Macchiavello, Rocco, 2008. "Learning and Microlending," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7011, C.E.P.R. Discussion Papers.
  12. Lixin Colin Xu, 2011. "The Effects of Business Environments on Development: Surveying New Firm-level Evidence," World Bank Research Observer, World Bank Group, World Bank Group, vol. 26(2), pages 310-340, August.
  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. 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.
  16. 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.

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