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What Makes Small Firms Grow? Finance, Human Capital, Technical Assistance, and the Business Environment in Romania

Author

Listed:
  • J. David Brown

    (Heriot-Watt University and CEU Labor Project)

  • John S. Earle

    (W.E. Upjohn Institute for Employment Research and Central European University)

  • Dana Lup

    (CEU Labor Project and University of Chicago)

Abstract

Although the development of a new private sector is generally considered crucial to economic transition and development, there has been little empirical research on the determinants of startup firm growth. This paper uses panel data techniques to analyze a survey of 297 new s small enterprises in Romania containing detailed information from the startup date through 2001. We find strong evidence that access to external finance (loans) increases the growth of both employment and sales. Taxes appear to constrain growth. There is some evidence that entrepreneurial skills increase growth, but only weak evidence for the effectiveness of technical assistance, and only when it is provided by foreign partners or international agencies. A wide variety of alternative measures of the business environment (contract enforcement, property rights, and corruption) are tested, but are found to have little or no association with firm growth.

Suggested Citation

  • J. David Brown & John S. Earle & Dana Lup, 2003. "What Makes Small Firms Grow? Finance, Human Capital, Technical Assistance, and the Business Environment in Romania," Upjohn Working Papers and Journal Articles 03-94, W.E. Upjohn Institute for Employment Research.
  • Handle: RePEc:upj:weupjo:03-94
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    Cited by:

    1. Ioan E. Nistor & Daniela-Rodica Popescu, 2013. "Romanian SMEs Financing Options: An Empirical Analysis," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(15), pages 12-21, December.
    2. Wolter, Hans-Jürgen, 2010. "Informationsasymmetrien in der familienexternen Nachfolge und ihre Überwindung," IfM-Materialien 191, Institut für Mittelstandsforschung (IfM) Bonn.
    3. Francis Boadu & Gabriel Dwomoh & Sarpong Appiah & Elizabeth Dwomo-Fokuo, 2014. "Venture Capital Financing: An Opportunity for Small and Medium Scale Enterprises in Ghana," Journal of Entrepreneurship and Business Innovation, Macrothink Institute, Journal of Entrepreneurship and Business Innovation, vol. 1(1), pages 1-15, June.
    4. David N Margolis, 2014. "By Choice and by Necessity: Entrepreneurship and Self-Employment in the Developing World," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 26(4), pages 419-436, September.
    5. repec:eee:labeco:v:47:y:2017:i:c:p:75-95 is not listed on IDEAS
    6. Erhardt, Eva Christine, 2017. "Microfinance beyond self-employment: Evidence for firms in Bulgaria," Labour Economics, Elsevier, vol. 47(C), pages 75-95.
    7. 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.
    8. 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).
    9. Dorothea Schäfer & Susan Steiner, 2014. "Financial Development and Employment: Evidence from Transition Countries," Discussion Papers of DIW Berlin 1390, DIW Berlin, German Institute for Economic Research.
    10. Burja Camelia, 2012. "Human Capital'S Impact On The Performance Of Romanian Knowledge Based Companies," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 337-342, December.
    11. 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.
    12. Levering, Britta & Schlömer-Laufen, Nadine, 2012. "Öffentliche Förderung von Unternehmensübernahmen: Notwendigkeit und Ausgestaltung," IfM-Materialien 219, Institut für Mittelstandsforschung (IfM) Bonn.
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    More about this item

    Keywords

    Earle; Romania; small; firms; growth; Upjohn;

    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy

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