Firm Capabilities under Stress: Business Environment Pressures and Establishment Scale in Bolivia

This paper examines how business environment pressures, firm capabilities, and establishment scale are related among formal enterprises operating under economic stress. Using the 2025 Bolivia Enterprise Survey, it estimates a survey-weighted path analytic structural equation model linking infrastructure stress, intensity of regulatory and tax interaction with the state, informal competition, and political instability to formal finance, adaptive, technology and standards, and digital transactional capabilities, and subsequently to sales and employment. The preferred model uses 567 establishments. Digital transactional capability, measured by electronic receipt of sales, is positively associated with both sales and employment and remains robust across alternative digital measures, the small-firm subpopulation, corruption controls, and trade extensions. Informal competition is negatively associated with digital transactions and has negative total associations with both outcomes. Formal finance and adaptation are particularly related to employment, while technology and standards are more closely related to sales. Greater interaction with the state is positively associated with formal capabilities and establishment scale, a relationship that remains distinct from corruption. International market integration adds explanatory content for sales without eliminating the digital transaction result. By contrast, the capability structure does not explain recent sales or employment growth. The findings support a framework for capabilities under stress in which heterogeneous external pressures are associated with distinct capability profiles rather than a uniform deterioration in firm performance. Because the data are cross-sectional, the estimated paths are interpreted as conditional associations rather than causal effects.