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Constrained firms, not subsistence activities: Evidence on capital returns and accumulation in Peruvian microenterprises

Author

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  • Göbel, Kristin

    (University of Hamburg)

  • Grimm, Michael

    (University of Passau, Erasmus University Rotterdam, IZA, DIW)

  • Lay, Jann

    (University of Göttingen, GIGA German Institute of Global and Area Studies, Hamburg)

Abstract

We investigate the returns to capital and capital accumulation using panel data of Peruvian micro enterprises (MEs). Marginal returns to capital are found to be very high at low levels of capital, but rapidly decreasing at higher levels. The dynamic analyses of capital accumulation in MEs suggest that credit constraints explain a major part of the variation in firm growth. We find a very large positive effect of household non-business wealth on capital stocks of MEs. We also show a sizable effect of risk on accumulation and pronounced interactions between wealth and risk. The presented evidence is consistent with poorly endowed entrepreneurs who operate in imperfect capital markets and a very risky environment.

Suggested Citation

  • Göbel, Kristin & Grimm, Michael & Lay, Jann, 2013. "Constrained firms, not subsistence activities: Evidence on capital returns and accumulation in Peruvian microenterprises," Working Papers 2013-001, Banco Central de Reserva del Perú.
    • Handle: RePEc:rbp:wpaper:2013-001
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    2. Renate Strobl & Conny Wunsch, 2021. "Risky choices and solidarity: disentangling different behavioural channels," Experimental Economics, Springer;Economic Science Association, vol. 24(4), pages 1185-1214, December.
    3. Esther Gehrke & Michael Grimm, 2018. "Do Cows Have Negative Returns? The Evidence Revisited," Economic Development and Cultural Change, University of Chicago Press, vol. 66(4), pages 673-707.
    4. Strobl, Renate & Wunsch, Conny, 2017. "Does Voluntary Risk Taking Affect Solidarity? Experimental Evidence from Kenya," IZA Discussion Papers 10906, Institute of Labor Economics (IZA).
    5. Negrete Garcia, Ana Karen, 2018. "Constrained Potential: A Characterisation of Mexican Microenterprises," GIGA Working Papers 309, GIGA German Institute of Global and Area Studies.
    6. Diao, Xinshen & McMillan, Margaret, 2018. "Toward an Understanding of Economic Growth in Africa: A Reinterpretation of the Lewis Model," World Development, Elsevier, vol. 109(C), pages 511-522.
    7. Brei, Michael & Gadanecz, Blaise & Mehrotra, Aaron, 2020. "SME lending and banking system stability: Some mechanisms at work," Emerging Markets Review, Elsevier, vol. 43(C).
    8. Helke Seitz, 2017. "Microenterprises in Developing Countries: Is there Growth Potential?," DIW Roundup: Politik im Fokus 114, DIW Berlin, German Institute for Economic Research.
    9. Esa A. Asyahid & Elan Satriawan, 2024. "The Nature of Self-Employment in Indonesia: Entrepreneurship or Survival Strategy?," Gadjah Mada Economics Working Paper Series 202403002, Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada.

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    More about this item

    Keywords

    Micro and small enterprises; credit constraints; risk; risk aversion; firm growth; Peru;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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