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

Author

Listed:
  • Brown, J. David

    (U.S. Census Bureau)

  • Earle, John S.

    (George Mason University)

  • Lup, Dana

    (Central European University, Budapest)

Abstract

Although the development of a new private sector is generally considered crucial to economic transition, there has been rather little empirical research on the determinants of startup firm growth. This paper uses panel data techniques to analyze a survey of 297 new small enterprises in Romania containing detailed information from the startup date through 2001. We find strong evidence that access to external credit increases the growth of both employment and sales. Taxes appear to constrain growth. The data suggest that entrepreneurial skills have little independent effect on growth, once demand conditions are taken into account. The evidence for the effectiveness of technical assistance is weak: only assistance provided by foreign partners yields a positive effect. A wide variety of alternative measures of the business environment (contract enforcement, property rights, and corruption) are tested, but none are found to have any clear association with firm growth.

Suggested Citation

  • Brown, J. David & Earle, John S. & Lup, Dana, 2004. "What Makes Small Firms Grow? Finance, Human Capital, Technical Assistance, and the Business Environment in Romania," IZA Discussion Papers 1343, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1343
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    References listed on IDEAS

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    More about this item

    Keywords

    business environment; small firms; entrepreneurship; microfinance; Romania;
    All these keywords.

    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights

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