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

Marina Dodlova, Kristin Göbel, Michael Grimm and Jann Lay ()

Labour Economics, 2015, vol. 33, issue C, 94-110

Abstract: We present a multi-period model of capital accumulation in order to investigate microenterprise (ME) production dynamics in a developing country context characterized by credit constraints and risk. These constraints are reflected in marginal returns to capital above market interest rates and we show that capital accumulation is faster in MEs with higher productivity, higher initial wealth and less risk exposure. We test our predictions using panel data for Peruvian MEs from 2002 to 2006. We indeed find high marginal returns to capital and sizable effects of household non-business wealth and, in contrast to previous studies, risk on capital accumulation in MEs. The findings of this paper can serve as a basis for the promotion of combined credit and risk management devices to enhance private sector development.

Keywords: Microenterprises; Capital accumulation; Credit constraints; Risk; Firm growth; Peru (search for similar items in EconPapers)
JEL-codes: D13 D61 O12 (search for similar items in EconPapers)
Date: 2015
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Related works:
Working Paper: Constrained firms, not subsistence activities: Evidence on capital returns and accumulation in Peruvian microenterprises (2013) Downloads
Working Paper: Constrained Firms, Not Subsistence Activities: Evidence on Capital Returns and Accumulation in Peruvian Microenterprises (2012) Downloads
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