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Constrained Potential: A Characterisation of Mexican Microenterprises

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  • Negrete Garcia, Ana Karen

Abstract

This paper investigates the existence and nature of constraints prevailing among Mexican microenterprises. It provides inter-temporal insights by relying on firm-level data spanning from 1994 to 2012. A performance index is defined based on firm levels of capital stock and monthly profits, and is used to estimate the empirical probability of a business's success. The predicted values are used to classify every microenterprise into one of three categories: upper, middle, or lower segment. Overall, the study provides evidence of constrained productivity and capital misallocation. Specifically, middle-segment firms exhibit entrepreneurial features and their average marginal returns are 15 percent. Because this segment faces mainly external constraints, cost-effective interventions are plausible. Regarding the lower-segment firms, it is estimated that their average monthly marginal returns are 30 per cent, compared to 1 per cent for the upper segment. It is also shown that, over time, the share that middle-segment firms represent relative to all microenterprises increased from 16 to 22 percent. Lastly, the sources of variation in monthly profits among segments are explored using the Oaxaca-Blinder decomposition method.

Suggested Citation

  • Negrete Garcia, Ana Karen, 2018. "Constrained Potential: A Characterisation of Mexican Microenterprises," GIGA Working Papers 309, GIGA German Institute of Global and Area Studies.
    • Handle: RePEc:zbw:gigawp:309
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    More about this item

    Keywords

    microenterprises; returns to capital; constrained productivity; Mexico; decomposition method; empirical probability;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • N86 - Economic History - - Micro-Business History - - - Latin America; Caribbean
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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