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Constrained Firms, Not Subsistence Activities: Evidence on Capital Returns and Accumulation in Peruvian Microenterprises

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  • Göbel, Kristin

    (University of Hamburg)

  • Grimm, Michael

    (University of Passau)

  • Lay, Jann

    (German Institute of Global and Area Studies (GIGA))

Abstract

We investigate the returns to capital and capital accumulation using panel data of Peruvian micro enterprises (MEs). Marginal returns to capital are found to be very high at low levels of capital, but rapidly decreasing at higher levels. The dynamic analyses of capital accumulation in MEs suggest that credit constraints explain a major part of the variation in firm growth. We find a very large positive effect of household non-business wealth on capital stocks of MEs. We also show a sizable effect of risk on accumulation and pronounced interactions between wealth and risk. The presented evidence is consistent with poorly endowed entrepreneurs who operate in imperfect capital markets and a very risky environment.

Suggested Citation

  • Göbel, Kristin & Grimm, Michael & Lay, Jann, 2012. "Constrained Firms, Not Subsistence Activities: Evidence on Capital Returns and Accumulation in Peruvian Microenterprises," IZA Discussion Papers 6866, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6866
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    Cited by:

    1. Brei, Michael & Gadanecz, Blaise & Mehrotra, Aaron, 2020. "SME lending and banking system stability: Some mechanisms at work," Emerging Markets Review, Elsevier, vol. 43(C).
    2. Renate Strobl & Conny Wunsch, 2017. "Does Voluntary Risk Taking Affect Solidarity? Experimental Evidence from Kenya," CESifo Working Paper Series 6578, CESifo.
    3. Nikita Céspedes & María E. Aquije & Alan Sánchez & Rafael Vera Tudela, 2016. "Productividad sectorial en el Perú: un análisis a nivel de firmas," Chapters of Books, in: Nikita Céspedes & Pablo Lavado & Nelson Ramírez Rondán (ed.), Productividad en el Perú: medición, determinantes e implicancias, edition 1, volume 1, chapter 3, pages 70-92, Fondo Editorial, Universidad del Pacífico.
    4. Renate Strobl & Conny Wunsch, 2021. "Risky choices and solidarity: disentangling different behavioural channels," Experimental Economics, Springer;Economic Science Association, vol. 24(4), pages 1185-1214, December.
    5. Helke Seitz, 2017. "Microenterprises in Developing Countries: Is there Growth Potential?," DIW Roundup: Politik im Fokus 114, DIW Berlin, German Institute for Economic Research.
    6. Esther Gehrke & Michael Grimm, 2018. "Do Cows Have Negative Returns? The Evidence Revisited," Economic Development and Cultural Change, University of Chicago Press, vol. 66(4), pages 673-707.
    7. Diao, Xinshen & McMillan, Margaret, 2018. "Toward an Understanding of Economic Growth in Africa: A Reinterpretation of the Lewis Model," World Development, Elsevier, vol. 109(C), pages 511-522.
    8. Negrete Garcia, Ana Karen, 2018. "Constrained Potential: A Characterisation of Mexican Microenterprises," GIGA Working Papers 309, GIGA German Institute of Global and Area Studies.

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    More about this item

    Keywords

    risk; credit constraints; micro and small enterprises; risk aversion; firm growth; Peru;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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