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

Authors

J. David Brown, Heriot-Watt UniversityFollow
John S. Earle, W.E. Upjohn Institute for Employment Research
Dana Lup, Central European University

Publication Date

10-2005

Source

Economic Development and Cultural Change 54(1): 33-70

Abstract

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.

DOI

10.1086/431264

Publisher

The University of Chicago Press

Sponsorship

Research funded in part through U.S. Dept. of State Grant S-LMAQM-00-H-0146, administered by the William Davidson Institute at the University of Michigan.

Subject Areas

INTERNATIONAL ISSUES; International labor comparisons; Transition economies; ECONOMIC DEVELOPMENT; Regional policy and planning; Business and tax incentives