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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Main Authors: Dinh, Hinh T., Mavridis, Dimitris A., Nguyen, Hoa B.
Format: Policy Research Working Paper
Language:English
Published: 2012
Subjects:
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
id okr-10986-3966
recordtype oai_dc
spelling 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
repository_type 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
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