Microenterprise Dynamics in Developing Countries: How Similar are They to Those in the Industrialized World? Evidence from Mexico

Abstract

A rich panel data set from Mexico is used to study the patterns of entry, exit, and growth of microenterprises and to compare these with the findings of the mainstream theoretical and empirical work on firm dynamics. The Mexican self-employment sector is much larger than its counterpart in the United States, which is reflected in higher unconditional rates of entry into the sector. The evidence for Mexico points to the significant presence of well-performing salaried workers among the likely entrants into self-employment, as opposed to the higher incidence of poorer wageworkers among the entrants into the U.S. self-employment sector. Despite these differences, however, the patterns of entry, survival, and growth with respect to age, education, and many other covariates are very similar in Mexico and the United States. These strong similarities suggest that mainstream models of worker decisions and firm behavior are useful guides for policymaking for the developing-country microenterprise sector. Furthermore, they suggest that, as a first approximation, the developing-country microenterprise should probably be viewed as they are in the advanced countries as offering potentially desirable job opportunities to low-productivity workers.This article examines whether microenterprises in developing countries behave similarly to their industrial country counterparts or whether they represent a separate phylum altogether. In industrial countries, the last two decades have seen the emergence of a set of stylized facts about the personal and firm characteristics associated with entry into self-employment, the survival and growth of existing microenterprises, and theoretical frameworks to explain them. However, notwithstanding the increasing importance given to the

Does Informal Employment Respond to Growth Opportunities? Trade-Based Evidence from Bangladesh

“…As explained in Section 2.1, these direct export demands combine both the initial export amount as well as the additional demand created by a sector for its own output and are therefore slightly larger than the figures in the previous row in the table. 8 This table also shows indirect export demand, which is, in fact, larger than the direct component: from 2002 to 2013, the indirect component increased from 7.4 billion US$ to 24.1 billion US$. The substantial size of the indirect demand underscores the importance of accounting for sectors that themselves might not export but have supply-chain relationships to exporting sectors.…”

“…This analysis is based on a Bartik-style measure of trade exposure, which exploits changes in export-induced demand over time, coupled with pre-existing employment in a zila. We construct measures of direct and total trade exposure for zila k at time t as follows: (8) where s jk is employment in industry j in zila k, divided by total employment in zila k, in the base year (2002): , respectively, which give the direct and total demand induced in zila k by national exports of industry j in year t (E jt ).…”

“…Next, we used reported HS 2002 and IO sector mappings for Bangladesh (Policy Research Institute of Bangladesh 2014) to map the export data to the IO sector codes. Since our analyses are conducted using consolidated IO codes, 8 We expect the export and direct demand figures to track each other fairly closely since sectors generally use a small portion of their own output. 10 For example, BSIC Rev 3 code 111 refers to "Growing of cereal crops".…”

Informal sector dynamics in times of fragile growth: The case of Madagascar

“…While some of these informal firms may indeed represent a form of urban subsistence production, the informal sector is usually also the host of a significant number of successful entrepreneurs. Indeed recent research on MSEs in developing countries consistently finds rather high returns to capital in microenterprises (Fajnzylber, et al, 2006;McKenzie and Woodruff, 2006;De Mel, et al, 2008;Kremer, et al, 2008;Grimm, et al, 2011) suggesting that this sector has potential and is not just catering for subsistence production. Heterogeneity contradicts the assertion that sustained economic growth shrinks the informal sector until it disappears.…”

Microentrepreneurship and the Business Cycle: Is Self-Employment a Desired Outcome?

“…The prospects for business are 5 This literature have roots in Hart (1972). Examples include: De Soto (1989), Maloney (1999Maloney ( , 2004, Battacharya (2002), Fajnzylber et al (2006) and Ñopo and Valenzuela (2007). 6 See Fajnzylber et al (2006).…”