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A Decade On: How Relevant is the Regulatory Environment for Micro and Small Enterprise Upgrading After All?

Author

Listed:
  • Tilman Altenburg

    (German Development Institute, Department of Sustainable Economic and Social Development)

  • Aimée Hampel-Milagrosa

    (German Development Institute, Department of Sustainable Economic and Social Development)

  • Markus Loewe

    (German Development Institute, Department of Sustainable Economic and Social Development)

Abstract

Micro and small enterprises in developing countries rarely upgrade and grow. The reasons are disputed. Recently, the ‘Doing Business’ reports strongly influenced the policy agenda, attributing small enterprise stagnation mainly to excessive bureaucracy and over-regulation. They claim a strong causal relationship running from regulatory reform and formalisation to business performance and overall economic growth and advocate reforms to reduce the complexity and cost of regulation. Our findings from research in the Philippines, India and Egypt challenge this view. Bureaucratic hurdles are of secondary importance. Entrepreneurs who want to formalise are usually able to do so. Formalisation usually comes after a firm has upgraded, i.e. when the entrepreneur perceives that the advantages of formalisation outweigh its disadvantages. Success in upgrading is strongly related to entrepreneurial attitudes and skills: know-how, proactive search for market opportunities, risk-taking attitude and creativity in dealing with financial constraints and deficits in the rule of law.

Suggested Citation

  • Tilman Altenburg & Aimée Hampel-Milagrosa & Markus Loewe, 2017. "A Decade On: How Relevant is the Regulatory Environment for Micro and Small Enterprise Upgrading After All?," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 29(2), pages 457-475, April.
    • Handle: RePEc:pal:eurjdr:v:29:y:2017:i:2:d:10.1057_s41287-016-0010-2
    DOI: 10.1057/s41287-016-0010-2
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