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Which is the tighter constraint on private sector investment: weak property rights or limited access to external finance? From a survey of new firms in post-communist countries, we find that weak property rights discourage firms from reinvesting their profits, even when bank loans are available. Where property rights are relatively strong, firms reinvest their profits; where they are relatively weak, entrepreneurs do not want to invest from retained earnings.

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Which is the tighter constraint on private sector investment: weak property rights or limited access to external finance? From a survey of new firms in post-communist countries, we find that weak property rights discourage firms from reinvesting their profits, even when bank loans are available. Where property rights are relatively strong, firms reinvest their profits; where they are relatively weak, entrepreneurs do not want to invest from retained earnings.

Fertility, Growth, Human capital, Investment, Mortality, I10, J10, O10,

The authors summarize entrepreneurial patterns in the transition economies, particularly Russia, China, Poland and Vietnam. Markets developed spontaneously in every transition country, but they were built at varying speeds. Some governments impeded the entrepreneurs' self-help by creating conditions that made it hard for informal contracting to work; others created an environment that was conducive to self-help. The spontaneous emergence of markets, furthermore, has its limits. As firms' activities became more complex, they came to need formal institutions. Some governments fostered entrepreneurship by building market-supporting infrastructure; others did not. The authors argue that the success or failure of a transition economy can be traced in large part to the performance of its entrepreneurs.