What Makes Small Firms Grow? Finance, Human Capital, Technical Assistance and the Business Environment in Romania

J. David Brown, John Earle and Daniela Lup ()

No 405, CERT Discussion Papers from Centre for Economic Reform and Transformation, Heriot Watt University

Abstract: Although the development of a new private sector is generally considered crucial to economic transition, there has been rather little empirical research on the determinants of startup firm growth. This paper uses panel data techniques to analyze a survey of 297 new small enterprises in Romania containing detailed information from the startup date through 2001. We find strong evidence that access to external credit increases the growth of both employment and sales. Taxes appear to constrain growth. The data suggest that entrepreneurial skills have little independent effect on growth, once demand conditions are taken into account. The evidence for the effectiveness of technical assistance is weak: only assistance provided by foreign partners yields a positive effect. A wide variety of alternative measures of the business environment (contract enforcement, property rights, and corruption) are tested, but none are found to have any clear association with firm growth.

Keywords: small firms; entrepreneurship; microfinance; business environment; Romania (search for similar items in EconPapers)
JEL-codes: M13 O16 O19 P26 (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-ent and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Working Paper: What Makes Small Firms Grow? Finance, Human Capital, Technical Assistance, and the Business Environment in Romania (2004)
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