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A Decade On: How Relevant is the Regulatory Environment for Micro and Small Enterprise Upgrading After All?

Tilman Altenburg (), Aimée Hampel-Milagrosa () and Markus Loewe ()
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Tilman Altenburg: German Development Institute, Department of Sustainable Economic and Social Development
Aimée Hampel-Milagrosa: German Development Institute, Department of Sustainable Economic and Social Development
Markus Loewe: German Development Institute, Department of Sustainable Economic and Social Development

The European Journal of Development Research, 2017, vol. 29, issue 2, 457-475

Abstract: Abstract Micro and small enterprises in developing countries rarely upgrade and grow. The reasons are disputed. Recently, the ‘Doing Business’ reports strongly influenced the policy agenda, attributing small enterprise stagnation mainly to excessive bureaucracy and over-regulation. They claim a strong causal relationship running from regulatory reform and formalisation to business performance and overall economic growth and advocate reforms to reduce the complexity and cost of regulation. Our findings from research in the Philippines, India and Egypt challenge this view. Bureaucratic hurdles are of secondary importance. Entrepreneurs who want to formalise are usually able to do so. Formalisation usually comes after a firm has upgraded, i.e. when the entrepreneur perceives that the advantages of formalisation outweigh its disadvantages. Success in upgrading is strongly related to entrepreneurial attitudes and skills: know-how, proactive search for market opportunities, risk-taking attitude and creativity in dealing with financial constraints and deficits in the rule of law.

Keywords: doing business; regulations; enterprise upgrading; micro and small enterprises; innovation; business environment (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:pal:eurjdr:v:29:y:2017:i:2:d:10.1057_s41287-016-0010-2