Barriers to Entry and Returns to Capital in Informal Activities

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.

Bibliographic Details

Main Authors:	Grimm, Michael, Kruger, Jens, Lay, Jann
Format:	Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2011-05
Subjects:	ACCESS TO CAPITAL, ACCOUNTS, BANK POLICY, BARRIER TO ENTRY, BORROWING CAPACITY, CAPACITY BUILDING, CAPITAL ACCUMULATION, CAPITAL ALLOCATIONS, CAPITAL CONSTRAINT, CAPITAL INVESTMENTS, CAPITAL MARKET, CAPITAL REQUIREMENTS, CAPITAL STOCK, CHECKS, COLLATERAL, CREDIT CONSTRAINTS, CREDIT PROGRAMS, CREDIT PROVIDERS, CREDIT RATIONING, CURRENCY, DECREASING RETURNS, DEVELOPING COUNTRY, DEVELOPMENT ECONOMICS, DISTRIBUTION OF WEALTH, ECONOMIC CONSTRAINTS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ELASTICITY, ENTRY BARRIERS, EQUIPMENT, EXOGENOUS VARIABLES, EXPENDITURE, FACTOR RETURNS, FINANCIAL SUPPORT, FIRST YEAR, FIXED COSTS, GDP, GDP PER CAPITA, GROWTH THEORY, HOUSEHOLD WEALTH, INCOME DISTRIBUTION, INCOME LEVELS, INFORMAL CREDIT, INSTRUMENT, INTEREST PAYMENTS, INVENTORY, INVESTING, INVESTMENT BEHAVIOR, LABOR MARKETS, LEVEL OF CAPITAL, LIQUIDITY, LIQUIDITY CONSTRAINTS, MACROECONOMICS, MARGINAL RATE OF RETURN, MARGINAL RETURN TO CAPITAL, MARKET CONSTRAINTS, MARKET IMPERFECTIONS, MICRO DATA, MICRO-CREDIT, MICROENTERPRISES, MONEY LENDERS, POLITICAL ECONOMY, PORTFOLIOS, PROFITABILITY, PURCHASING POWER, RATES OF RETURNS, RETURNS, RISK AVERSE, RISK AVERSION, STATIC ANALYSIS, TAX, TOTAL CAPITAL STOCK, TRADE SECTOR, TRADER, TRADING, TRUST FUND, UNIT OF CAPITAL, VALUE ADDED, WEALTH,
Online Access:	http://documents.worldbank.org/curated/en/195371468313855766/Barriers-to-entry-and-returns-to-capital-in-informal-activities-evidence-from-Sub-Saharan-Africa https://hdl.handle.net/10986/27365
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