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Barriers to entry and returns to capital in informal activities: evidence from Sub-Saharan Africa

Michael Grimm, Jens Kruger and Jann Lay ()

No 77927, Social Protection Discussion Papers and Notes from The World Bank

Abstract: This paper investigates the patterns of capital entry barriers and capital returns in informal Micro and Small Enterprises (MSE's) using a unique micro data set seven West-African countries. The author's findings support the view of a heterogeneous informal sector that is not primarily host to subsistence activities. While an assessment of initial investment identifies some informal activities with negligible entry barriers, a notable cost of entry is associated to most activities. The authors find very heterogeneous patterns of capital returns in informal MSE's. At very low levels of capital, marginal returns are extremely high- often exceeding 70 percent per month. Above a capital stock of 150 international dollars, marginal returns are found to be relatively low at around 4 to 7 percent monthly. The authors provide some evidence that the high returns at low capital stocks reflect high risks. At the same time, most MSE's appear to be severely capital constrained.

Keywords: Economic Theory&Research; Debt Markets; Investment and Investment Climate; Economic Growth; Banking Law (search for similar items in EconPapers)
Date: 2011-05-01
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Related works:
Journal Article: BARRIERS TO ENTRY AND RETURNS TO CAPITAL IN INFORMAL ACTIVITIES: EVIDENCE FROM SUB‐SAHARAN AFRICA (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:hdnspu:77927

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