Do Entry Costs Provide an Empirical Basis for Poverty Traps? Evidence from Mexican Microenterprises
Recent theoretical literature in development economics has shown that nonconvex production technologies can result in low-growth poverty traps. This article uses detailed microenterprise surveys in Mexico to examine the empirical evidence for these nonconvexities at low levels of capital stock. While theory emphasizes nondivisible start-up costs that exceed the wealth of many potential entrepreneurs, this article shows start-up costs to be very low in some industries. Semiparametric methods are then used to flexibly estimate returns to capital in microenterprises. Much higher returns are found at low levels of capital stock than at higher levels, and this remains true after controlling for firm characteristics and measures of entrepreneurial ability. Overall, little evidence of production nonconvexities is found at low levels of capital. The absence of nonconvexities is a significant finding because it suggests that access to start-up capital does not determine the ultimate size of the enterprise.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Blanchflower, D.G. & Oswald, A., 1991.
"What Makes an Entrepreneur?,"
Economics Series Working Papers
99125, University of Oxford, Department of Economics.
- James Tybout, 1998.
"Manufacturing Firms In Developing Countries: How Well Do They Do, And Why?,"
Development and Comp Systems
- James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
- James Tybout, 1999. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Development and Comp Systems 9906001, EconWPA, revised 10 Jun 1999.
- Tybout, James, 1998. "Manufacuring firms in developing countries - how well do they do, and why?," Policy Research Working Paper Series 1965, The World Bank.
- Lam, David & Schoeni, Robert F, 1993.
"Effects of Family Background on Earnings and Returns to Schooling: Evidence from Brazil,"
Journal of Political Economy,
University of Chicago Press, vol. 101(4), pages 710-740, August.
- Lam. D. & Schoeni, R.F., 1996. "Effects on Family Background on Earnings and Returns to Schooling: Evidence from Brazil," Papers 96-13, RAND - Reprint Series.
- Donna K. Ginther & Madeline Zavodny, 1998.
"Is the male marriage premium due to selection? The effect of shotgun weddings on the return to marriage,"
FRB Atlanta Working Paper
97-5, Federal Reserve Bank of Atlanta.
- Donna K. Ginther & Madeline Zavodny, 2001. "Is the male marriage premium due to selection? The effect of shotgun weddings on the return to marriage," Journal of Population Economics, Springer;European Society for Population Economics, vol. 14(2), pages 313-328.
- James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
- Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
When requesting a correction, please mention this item's handle: RePEc:ucp:ecdecc:y:2006:v:55:i:1:p:3-42. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
If references are entirely missing, you can add them using this form.