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

Although the development of a new private sector is generally considered crucial to economic transition, there has been little empirical research on the determinants of start-up firm growth. This article analyzes panel data on 297 new small enterprises in Romania with detailed annual information from the start-up date through 2001. Controlling for heterogeneity with a rich set of firm characteristics and firm fixed effects, our panel regressions imply that access to external credit substantially increases both employment and sales growth. Entrepreneurial characteristics such as gender and education have weaker estimated effects. Neither technical assistance nor a wide variety of measures of the business environment (contract enforcement, property rights, and corruption) have any clear association with firm growth.

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Paper provided by W.E. Upjohn Institute for Employment Research in its series Upjohn Working Papers and Journal Articles with number jse20052.

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Handle: RePEc:upj:weupjo:jse20052
Note: Appears in Economic Development and Cultural Change 54(1): 33-70
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  1. Andrzej Bratkowski & Irena Grosfeld & Jacek Rostowski, 2000. "Investment and Finance in "de novo" private firms: Empirical Results from the Czech Republic, Hungary and Poland," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(1), pages 101-116, March.
  2. repec:ebd:wpaper:59 is not listed on IDEAS
  3. A. Richter & M.E. Schaffer, 1996. "The Performance of De Novo Private Firms in Russian Manufacturing," CERT Discussion Papers 9610, Centre for Economic Reform and Transformation, Heriot Watt University.
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  15. John McMillan & Christopher Woodruff, 2002. "The Central Role of Entrepreneurs in Transition Economies," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 153-170, Summer.
  16. World Bank, 2002. "Transition, The First Ten Years : Analysis and Lessons for Eastern Europe and the Former Soviet Union," World Bank Publications, The World Bank, number 14042.
  17. J Earle & S Estrin & L Leshchenko, 1996. "Ownership Structures," CEP Discussion Papers dp0315, Centre for Economic Performance, LSE.
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  19. Schneider, Friedrich, 2002. "The Size and Development of the Shadow Economies of 22 Transition and 21 OECD Countries," IZA Discussion Papers 514, Institute for the Study of Labor (IZA).
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