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Releasing constraints to growth or pushing on a string ? the impact of credit, training, business associations, and taxes on the performance of Mexican micro-firms

Author

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  • Fajnzylber, Pablo
  • Maloney, William F.
  • Rojas, Gabriel V. Montes

Abstract

The authors employ propensity score matching and a traditional control function approach to examine the impact of participation in various societal institutions on microfirm performance in Mexico. They find that firms that participate in credit markets, receive training,pay taxes, and belong to business associations exhibit significantly higher profits, even after controlling for the various factors that drive participation in those institutions. They also find that firms that borrow from formal or informal sources and those that pay taxes are significantly more likely to stay in business, but firms that received credit exhibit lower rates of income growth. Overall, the results suggest that even if the best performing micro-firms are more likely to be selected into participating in societal institutions, causality also runs in the opposite direction. In particular, increases in strictly or broadly defined formality have the potential for increasing profits and survival rates, and appear to bring micro-firms closer to their optimal sizes.

Suggested Citation

  • Fajnzylber, Pablo & Maloney, William F. & Rojas, Gabriel V. Montes, 2006. "Releasing constraints to growth or pushing on a string ? the impact of credit, training, business associations, and taxes on the performance of Mexican micro-firms," Policy Research Working Paper Series 3807, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3807
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    Cited by:

    1. Nesma Mohamed Ali, 2017. "Towards a better integration of the informal sector: three empirical essays on the interaction between formal and informal firms in Egypt and beyond," Erudite Ph.D Dissertations, Erudite, number ph17-05 edited by Manon Domingues Dos Santos & Boris Najman, November.
    2. World Bank, 2009. "Increasing Formality and Productivity of Bolivian Firms," World Bank Publications, The World Bank, number 2675, December.
    3. Olexandr Yemelyanov & Tetyana Petrushka & Anastasiya Symak & Olena Trevoho & Anatolii Turylo & Oksana Kurylo & Lesia Danchak & Dmytro Symak & Lilia Lesyk, 2020. "Microcredits for Sustainable Development of Small Ukrainian Enterprises: Efficiency, Accessibility, and Government Contribution," Sustainability, MDPI, Open Access Journal, vol. 12(15), pages 1-32, July.
    4. J. David Brown & Julie L. Hotchkiss & Myriam Quispe-Agnoli, 2013. "Does Employing Undocumented Workers Give Firms A Competitive Advantage?," Journal of Regional Science, Wiley Blackwell, vol. 53(1), pages 158-170, February.
    5. David McKenzie, 2010. "Impact Assessments in Finance and Private Sector Development: What Have We Learned and What Should We Learn?," World Bank Research Observer, World Bank Group, vol. 25(2), pages 209-233, August.
    6. Erol Taymaz, 2009. "Informality and Productivity: Productivity Differentials between Formal and Informal Firms in Turkey," ERC Working Papers 0901, ERC - Economic Research Center, Middle East Technical University, revised Mar 2009.
    7. McKenzie, David & Seynabou Sakho, Yaye, 2010. "Does it pay firms to register for taxes? The impact of formality on firm profitability," Journal of Development Economics, Elsevier, vol. 91(1), pages 15-24, January.
    8. Kalyvas, Antonios Nikolaos & Mamatzakis, Emmanuel, 2014. "Does business regulation matter for banks in the European Union?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 278-324.
    9. World Bank, . "Bolivia : Policies for Increasing Firms’ Formality and Productivity," World Bank Other Operational Studies, The World Bank, number 8003, March.
    10. World Bank, . "Mexico - Improving Productivity for the Urban Poor," World Bank Other Operational Studies, The World Bank, number 3047, March.
    11. Ms. Era Dabla-Norris & Ms. Junko Koeda, 2008. "Informality and Bank Credit: Evidence from Firm-Level Data," IMF Working Papers 2008/094, International Monetary Fund.
    12. Zenou, Yves, 2008. "Job search and mobility in developing countries. Theory and policy implications," Journal of Development Economics, Elsevier, vol. 86(2), pages 336-355, June.
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    Keywords

    Economic Theory&Research; Science Education; Scientific Research&Science Parks; Investment and Investment Climate; Educational Sciences;
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