| By: |
T. Dinh, Hinh;
Mavridis, Dimitris A.;
Nguyen, Hoa B. |
| Abstract: |
Firms in developing countries face numerous and serious constraints on their
growth, ranging from corruption to lack of infrastructure to inability to
access finance. Countries lack the resources to remove all the constraints at
once and so would be better off removing the most binding one first. This
paper uses data from World Bank Enterprise Surveys in 2006-10 to identify the
most binding constraints on firm operations in developing countries. While
each country faces a different set of constraints, these constraints also vary
by firm characteristics, especially firm size. Across all countries, access to
finance is among the most binding constraints; other obstacles appear to
matter much less. This result is robust for all regions. Smaller firms must
rely more on their own funds to invest and would grow significantly faster if
they had greater access to external funds. As a result, a low level of
financial development skews the firm size distribution by increasing the
relative share of small firms. The results suggest that financing constraints
play a significant part in explaining the"missing middle"-- the failure of
small firms in developing countries to grow into medium-size or large firms. |
| Keywords: |
Access to Finance,Environmental Economics&Policies,Microfinance,Debt Markets,Banks&Banking Reform |
| Date: |
2010–11–01 |
| URL: |
http://d.repec.org/n?u=RePEc:wbk:wbrwps:5485&r=mfd |