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A Decade On: How Relevant is the Regulatory Environment for Micro and Small Enterprise Upgrading After All?

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Abstract

Micro and small enterprises in developing countries rarely upgrade and grow. The reasons are disputed. Recently, the ‘Doing Business’ reports strongly influenced the policy agenda, attributing small enterprise stagnation mainly to excessive bureaucracy and over-regulation. They claim a strong causal relationship running from regulatory reform and formalisation to business performance and overall economic growth and advocate reforms to reduce the complexity and cost of regulation. Our findings from research in the Philippines, India and Egypt challenge this view. Bureaucratic hurdles are of secondary importance. Entrepreneurs who want to formalise are usually able to do so. Formalisation usually comes after a firm has upgraded, i.e. when the entrepreneur perceives that the advantages of formalisation outweigh its disadvantages. Success in upgrading is strongly related to entrepreneurial attitudes and skills: know-how, proactive search for market opportunities, risk-taking attitude and creativity in dealing with financial constraints and deficits in the rule of law.

Les micros et petites entreprises dans les pays en voie de développement ne s’améliorent et ne se développent que rarement. Les raisons sont contestées. Récemment, les rapports de « Doing Business » ont fortement influencé l’agenda politique, attribuant la stagnation des petites entreprises principalement à la bureaucratie excessive et à la surrèglementation. Ils réclament un fort lien de causalité allant de la réforme règlementaire et de l’officialisation à la performance commerciale et de la défense des réformes pour réduire la complexité et le coût du règlement. Nos résultats de recherches dans les Philippines, en Inde et en Egypte remettent en cause ce point de vue. Les obstacles bureaucratiques sont d’importance secondaire. Les entrepreneurs qui veulent formaliser peuvent habituellement le faire. La formalisation vient habituellement après qu’une entreprise se soit améliorée, c’est à dire lorsque l’entrepreneur se rend compte que la formalisation compte plus d’avantages que d’inconvénients. Le succès dans l’évolution est fortement lié aux attitudes et aux qualifications entrepreneuriales : savoir-faire, recherche proactive des opportunités du marché, qui ose prendre des risques et créativité face aux contraintes et déficits financiers dans l’État de droit.

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Figure 1

Source: Reeg (2013a).

Figure 2

Source: Loewe et al (2013).

Figure 3

Note: Interviewees were asked to mention up to 6 factors from any of the layers on our ‘onion model’ (Figure 1).

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Authors and Affiliations

  1. German Development Institute, Department of Sustainable Economic and Social Development, Tulpenfeld 6, 53113, Bonn, Germany

    Tilman Altenburg, Aimée Hampel-Milagrosa & Markus Loewe

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  1. Tilman Altenburg
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  2. Aimée Hampel-Milagrosa
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Correspondence to Aimée Hampel-Milagrosa.

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Altenburg, T., Hampel-Milagrosa, A. & Loewe, M. A Decade On: How Relevant is the Regulatory Environment for Micro and Small Enterprise Upgrading After All?. Eur J Dev Res 29, 457–475 (2017). https://doi.org/10.1057/s41287-016-0010-2

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