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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
  • John S. Earle

    ()

  • Dana Lup

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, and there is only weak evidence for the effectiveness of technical assistance, and only when it is provided by foreign partners. 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 William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-702.

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Length: 48 pages
Date of creation: 01 May 2004
Date of revision:
Handle: RePEc:wdi:papers:2004-702

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Keywords: Small Firms; Entrepreneurship; Microfinance; Business Environment; Romania;

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References

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  1. A. Richter & M.E. Schaffer, 1996. "The Performance of De Novo Private Firms in Russian Manufacturing," CERT Discussion Papers, Centre for Economic Reform and Transformation, Heriot Watt University 9610, Centre for Economic Reform and Transformation, Heriot Watt University.
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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. Toledo, Arcelia & Hernández, José de la Paz & Griffin, Denis, 2010. "Incentives and the growth of Oaxacan subsistence businesses," Journal of Business Research, Elsevier, Elsevier, vol. 63(6), pages 630-638, June.
  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, Asian Economic and Social Society, vol. 2(3), pages 463-477, July.
  5. 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).
  6. Wolter, Hans-Jürgen, 2010. "Informationsasymmetrien in der familienexternen Nachfolge und ihre Überwindung," IfM-Materialien 191, Institut für Mittelstandsforschung (IfM) Bonn.
  7. Nofsinger, John R. & Wang, Weicheng, 2011. "Determinants of start-up firm external financing worldwide," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(9), pages 2282-2294, September.
  8. Jahangir Aziz & Li Cui, 2007. "Explaining China's Low Consumption," IMF Working Papers 07/181, International Monetary Fund.
  9. 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.
  10. 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.
  11. 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).

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