The Binding Constraint on Firms’ Growth in Developing Countries
Firms in developing countries face numerous and serious constraints on their growth, ranging from corruption to lack of infrastructure to inability to access finance. Countries lack the resources to remove all the constraints at once and so would b...
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| Format: | Policy Research Working Paper |
| Language: | English |
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2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101124114607 http://hdl.handle.net/10986/3966 |
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okr-10986-39662021-04-23T14:02:14Z The Binding Constraint on Firms’ Growth in Developing Countries Dinh, Hinh T. Mavridis, Dimitris A. Nguyen, Hoa B. ACCESS TO FINANCE APPLICATION PROCEDURES BANK LOANS BIASES BINDING CONSTRAINT BUSINESS ENVIRONMENT BUSINESS OWNERS CAPITAL CONSTRAINTS CAPITAL MARKETS COLLATERAL COLLATERAL REQUIREMENTS COMPETITORS CORRUPTION CREDIT CONSTRAINT CREDIT INCREASES CREDIT REPORTING CREDITOR DEBT DEVELOPING COUNTRIES DEVELOPMENT BANK DUMMY VARIABLE ECONOMIC DEVELOPMENT ECONOMIC GROWTH EMPLOYMENT EMPLOYMENT GROWTH ENTREPRENEURS EXPORTER EXPORTERS EXTERNAL FINANCE EXTERNAL FUNDS FINANCE ACCESS FINANCIAL ACCESS FINANCIAL DEVELOPMENT FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL SECTOR DEVELOPMENT FINANCIAL SECTOR REFORMS FINANCIAL SERVICES FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCING OBSTACLES FIRM PERFORMANCE FIRM SIZE FIRM SIZES FIRMS FIXED ASSETS FOREIGN INVESTMENT GOVERNMENT OWNERSHIP GREATER ACCESS HUMAN RESOURCES INSTITUTIONAL DEVELOPMENT INTEREST RATES INTERNATIONAL BANK INTERNATIONAL TRADE INVESTMENT CLIMATE INVESTMENT FINANCE INVESTMENT FUNDS ISSUANCES JOB CREATION LABOR FORCE LACK OF ACCESS LEGAL CONSTRAINTS LEGAL ENVIRONMENT LICENSING LINE OF CREDIT LINES OF CREDIT LOAN MANUFACTURING ENTERPRISE MATURITY MONEYLENDERS NONBANK FINANCIAL INSTITUTIONS OVERDRAFT OVERDRAFT FACILITY OWNERSHIP STRUCTURE POLITICAL ECONOMY PRODUCTIVE INVESTMENTS PRODUCTIVITY PROPERTY RIGHTS PUBLIC BANKS RED TAPE SALES GROWTH SHARE OF INVESTMENT SMALL FIRMS SUPPLIERS TAX TAX ADMINISTRATION TAX RATES TAXATION TRANSPORT Firms in developing countries face numerous and serious constraints on their growth, ranging from corruption to lack of infrastructure to inability to access finance. Countries lack the resources to remove all the constraints at once and so would be better off removing the most binding one first. This paper uses data from World Bank Enterprise Surveys in 2006-10 to identify the most binding constraints on firm operations in developing countries. While each country faces a different set of constraints, these constraints also vary by firm characteristics, especially firm size. Across all countries, access to finance is among the most binding constraints; other obstacles appear to matter much less. This result is robust for all regions. Smaller firms must rely more on their own funds to invest and would grow significantly faster if they had greater access to external funds. As a result, a low level of financial development skews the firm size distribution by increasing the relative share of small firms. The results suggest that financing constraints play a significant part in explaining the "missing middle" -- the failure of small firms in developing countries to grow into medium-size or large firms. 2012-03-19T18:43:01Z 2012-03-19T18:43:01Z 2010-11-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101124114607 http://hdl.handle.net/10986/3966 English Policy Research working paper ; no. WPS 5485 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region The World Region |
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Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ACCESS TO FINANCE APPLICATION PROCEDURES BANK LOANS BIASES BINDING CONSTRAINT BUSINESS ENVIRONMENT BUSINESS OWNERS CAPITAL CONSTRAINTS CAPITAL MARKETS COLLATERAL COLLATERAL REQUIREMENTS COMPETITORS CORRUPTION CREDIT CONSTRAINT CREDIT INCREASES CREDIT REPORTING CREDITOR DEBT DEVELOPING COUNTRIES DEVELOPMENT BANK DUMMY VARIABLE ECONOMIC DEVELOPMENT ECONOMIC GROWTH EMPLOYMENT EMPLOYMENT GROWTH ENTREPRENEURS EXPORTER EXPORTERS EXTERNAL FINANCE EXTERNAL FUNDS FINANCE ACCESS FINANCIAL ACCESS FINANCIAL DEVELOPMENT FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL SECTOR DEVELOPMENT FINANCIAL SECTOR REFORMS FINANCIAL SERVICES FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCING OBSTACLES FIRM PERFORMANCE FIRM SIZE FIRM SIZES FIRMS FIXED ASSETS FOREIGN INVESTMENT GOVERNMENT OWNERSHIP GREATER ACCESS HUMAN RESOURCES INSTITUTIONAL DEVELOPMENT INTEREST RATES INTERNATIONAL BANK INTERNATIONAL TRADE INVESTMENT CLIMATE INVESTMENT FINANCE INVESTMENT FUNDS ISSUANCES JOB CREATION LABOR FORCE LACK OF ACCESS LEGAL CONSTRAINTS LEGAL ENVIRONMENT LICENSING LINE OF CREDIT LINES OF CREDIT LOAN MANUFACTURING ENTERPRISE MATURITY MONEYLENDERS NONBANK FINANCIAL INSTITUTIONS OVERDRAFT OVERDRAFT FACILITY OWNERSHIP STRUCTURE POLITICAL ECONOMY PRODUCTIVE INVESTMENTS PRODUCTIVITY PROPERTY RIGHTS PUBLIC BANKS RED TAPE SALES GROWTH SHARE OF INVESTMENT SMALL FIRMS SUPPLIERS TAX TAX ADMINISTRATION TAX RATES TAXATION TRANSPORT |
| spellingShingle |
ACCESS TO FINANCE APPLICATION PROCEDURES BANK LOANS BIASES BINDING CONSTRAINT BUSINESS ENVIRONMENT BUSINESS OWNERS CAPITAL CONSTRAINTS CAPITAL MARKETS COLLATERAL COLLATERAL REQUIREMENTS COMPETITORS CORRUPTION CREDIT CONSTRAINT CREDIT INCREASES CREDIT REPORTING CREDITOR DEBT DEVELOPING COUNTRIES DEVELOPMENT BANK DUMMY VARIABLE ECONOMIC DEVELOPMENT ECONOMIC GROWTH EMPLOYMENT EMPLOYMENT GROWTH ENTREPRENEURS EXPORTER EXPORTERS EXTERNAL FINANCE EXTERNAL FUNDS FINANCE ACCESS FINANCIAL ACCESS FINANCIAL DEVELOPMENT FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL SECTOR DEVELOPMENT FINANCIAL SECTOR REFORMS FINANCIAL SERVICES FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCING OBSTACLES FIRM PERFORMANCE FIRM SIZE FIRM SIZES FIRMS FIXED ASSETS FOREIGN INVESTMENT GOVERNMENT OWNERSHIP GREATER ACCESS HUMAN RESOURCES INSTITUTIONAL DEVELOPMENT INTEREST RATES INTERNATIONAL BANK INTERNATIONAL TRADE INVESTMENT CLIMATE INVESTMENT FINANCE INVESTMENT FUNDS ISSUANCES JOB CREATION LABOR FORCE LACK OF ACCESS LEGAL CONSTRAINTS LEGAL ENVIRONMENT LICENSING LINE OF CREDIT LINES OF CREDIT LOAN MANUFACTURING ENTERPRISE MATURITY MONEYLENDERS NONBANK FINANCIAL INSTITUTIONS OVERDRAFT OVERDRAFT FACILITY OWNERSHIP STRUCTURE POLITICAL ECONOMY PRODUCTIVE INVESTMENTS PRODUCTIVITY PROPERTY RIGHTS PUBLIC BANKS RED TAPE SALES GROWTH SHARE OF INVESTMENT SMALL FIRMS SUPPLIERS TAX TAX ADMINISTRATION TAX RATES TAXATION TRANSPORT Dinh, Hinh T. Mavridis, Dimitris A. Nguyen, Hoa B. The Binding Constraint on Firms’ Growth in Developing Countries |
| geographic_facet |
The World Region The World Region |
| relation |
Policy Research working paper ; no. WPS 5485 |
| description |
Firms in developing countries face
numerous and serious constraints on their growth, ranging
from corruption to lack of infrastructure to inability to
access finance. Countries lack the resources to remove all
the constraints at once and so would be better off removing
the most binding one first. This paper uses data from World
Bank Enterprise Surveys in 2006-10 to identify the most
binding constraints on firm operations in developing
countries. While each country faces a different set of
constraints, these constraints also vary by firm
characteristics, especially firm size. Across all countries,
access to finance is among the most binding constraints;
other obstacles appear to matter much less. This result is
robust for all regions. Smaller firms must rely more on
their own funds to invest and would grow significantly
faster if they had greater access to external funds. As a
result, a low level of financial development skews the firm
size distribution by increasing the relative share of small
firms. The results suggest that financing constraints play a
significant part in explaining the "missing
middle" -- the failure of small firms in developing
countries to grow into medium-size or large firms. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Dinh, Hinh T. Mavridis, Dimitris A. Nguyen, Hoa B. |
| author_facet |
Dinh, Hinh T. Mavridis, Dimitris A. Nguyen, Hoa B. |
| author_sort |
Dinh, Hinh T. |
| title |
The Binding Constraint on Firms’ Growth in Developing Countries |
| title_short |
The Binding Constraint on Firms’ Growth in Developing Countries |
| title_full |
The Binding Constraint on Firms’ Growth in Developing Countries |
| title_fullStr |
The Binding Constraint on Firms’ Growth in Developing Countries |
| title_full_unstemmed |
The Binding Constraint on Firms’ Growth in Developing Countries |
| title_sort |
binding constraint on firms’ growth in developing countries |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101124114607 http://hdl.handle.net/10986/3966 |
| _version_ |
1764389255134576640 |