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Binding Constraints: Does Firm Size Matter?

  • Vargas, Jose P Mauricio

Using Bolivian firm level data from the World Bank 2010 Enterprise Survey, we attempt to find evidence to support the idea that distinct formal firms (according to their size) have a distinct likelihood of facing obstacles. We propose that a potential endogeneity between firms' constraints and firm size should be considered. After calculating estimations from an IV-ordered probit with an ordinal endogenous regressor, the results suggest that the firm size affects the constraint level reported by firms, but not for all kind of obstacles. `Corruption', `Political Instability', and `Crime, Theft and Disorder' are obstacles which affect all firms; `Electricity' and `Transportation' are binding constraints to medium and large firms; and `Access to Financing' is a binding constraint to small firms. These findings are important because they can be directly extrapolated to public policy that is focused on the performance of firms.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 41286.

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Date of creation: 04 Sep 2012
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Handle: RePEc:pra:mprapa:41286
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  1. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993. "Entrepreneurial Decisions and Liquidity Constraints," NBER Working Papers 4526, National Bureau of Economic Research, Inc.
  2. Gian Luca Clementi & Hugo Hopenhayn, . "A Theory of Financing Constraints and Firm Dynamics," GSIA Working Papers 2002-E9, Carnegie Mellon University, Tepper School of Business.
  3. Lu�s M B Cabral & Jos� Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
  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. Krishna B. Kumar & Raghuram G. Rajan & Luigi Zingales, . "What Determines Firm Size?," CRSP working papers 496, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  6. Aterido, Reyes & Hallward-Driemeier, Mary & Pages, Carmen, 2009. "Big constraints to small firms'growth ? business environment and employment growth across firms," Policy Research Working Paper Series 5032, The World Bank.
  7. T. Dinh, Hinh & Mavridis, Dimitris A. & Nguyen, Hoa B., 2010. "The binding constraint on firms'growth in developing countries," Policy Research Working Paper Series 5485, The World Bank.
  8. Patrizio Pagano & Fabiano Schivardi, 2001. "Firm Size Distribution and Growth," Temi di discussione (Economic working papers) 394, Bank of Italy, Economic Research and International Relations Area.
  9. Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2005. "Financial and Legal Constraints to Growth: Does Firm Size Matter?," Journal of Finance, American Finance Association, vol. 60(1), pages 137-177, 02.
  10. Thomas F. Cooley & Vincenzo Quadrini, 1999. "Financial Markets and Firm Dynamics," Working Papers 99-14, New York University, Leonard N. Stern School of Business, Department of Economics.
  11. Hobdari, Bersant & Jones, Derek C. & Mygind, Niels, 2009. "Capital investment and determinants of financial constraints in Estonia," Economic Systems, Elsevier, vol. 33(4), pages 344-359, December.
  12. Hiroyuki Kawakatsu & Ann G. Largey, 2009. "EM algorithms for ordered probit models with endogenous regressors," Econometrics Journal, Royal Economic Society, vol. 12(1), pages 164-186, 03.
  13. Johansson, Edvard, 2000. " Self-Employment and Liquidity Constraints: Evidence from Finland," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 123-34, March.
  14. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 319-347, April.
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