Small Business Economics

, Volume 39, Issue 2, pp 383–400 | Cite as

Firm growth and barriers to growth among small firms in India

Article

Abstract

Empirical work on micro and small firms focuses on developed countries, while existing work on developing countries is all too often based on small samples taken from ad hoc questionnaires. The census data we analyze here are fairly representative of small business structure in India. Consistent with findings from prior research on developed countries, size and age have a negative impact on firm growth in the majority of specifications. Enterprises managed by women have lower expected growth rates. Proprietary firms face lower growth on the whole, especially if they are young firms. Exporting has a positive effect on firm growth, especially for young firms and for female-owned firms. Although some small firms are able to convert know-how into commercial success, we find that many others are unable to translate it into superior growth.

Keywords

Entrepreneurship Developing countries Micro and small businesses Firm growth Firm age Barriers to growth Declining firms Female entrepreneurs Robust regression 

JEL Classifications

L26 L25 

Notes

Acknowledgments

We are grateful to the Ministry of Small Scale Industries, Government of India, for giving access to the data, and also to Wim Naude, Ulrich Witt, and participants at the UNU-Wider workshop on "Entrepreneurship and Economic Development" (Helsinki, August 2008), as well as to two anonymous referees and the editor (Marco Vivarelli) for many helpful comments. The usual caveat applies.

References

  1. Acs, Z. J. (2006). How is entrepreneurship good for economic growth. Innovations, 1(1), 97–107.CrossRefGoogle Scholar
  2. Acs, Z. J., & Audretsch, D. B. (1990). Innovation and small firms. Cambridge: MIT Press.Google Scholar
  3. Aftab, K., & Rahim, E. (1989). ‘Barriers’ to the growth of informal sector firms: A case study. Journal of Development Studies, 25(4), 490–507.CrossRefGoogle Scholar
  4. Aghion, P., Burgess, R., Redding, S., & Zilibotti, F. (2005). Entry liberalization and inequality in industrial performance. Journal of the European Economic Association, 3(2–3), 291–302.Google Scholar
  5. Allen, F., Chakrabarti, R., De, S., Qian, J., & Qian, M. (2006). Financing firms in India. World Bank Policy Research Working Paper 3975. Washington D.C.: World BankGoogle Scholar
  6. Autio, E. (2008). High- and low-aspiration entrepreneurship and economic growth in low-income economies. Paper presented at the UNU-WIDER project Workshop on Entrepreneurship and Economic Development, Helsinki.Google Scholar
  7. Autio, E., Sapienza, H., & Almeida, J. (2000). Effects of age at entry, knowledge intensity, and imitability on international growth. Academy of Management Journal, 43(5), 909–924.CrossRefGoogle Scholar
  8. Balakrishnan, P., Parameswaran, M., Pushpangadan, K., & Babu, M. (2006). Liberalization, market power, and productivity growth in Indian industry. Journal of Policy Reform, 9(1), 55–73.CrossRefGoogle Scholar
  9. Banerjee, A., & Duflo, E. (2007). The economic lives of the poor. Journal of Economic Perspectives, 21(1), 141.CrossRefGoogle Scholar
  10. Barron, D. N., West, E., & Hannan M. T. (1994). A time to growth and a time to die: Growth and mortality of credit unions in New York, 1914–1990. American Journal of Sociology, 100(2), 381–421.Google Scholar
  11. Beck, T., Demirguc-Kunt, A., & Levine, R. (2005). SMEs, growth, and poverty: Cross-country evidence. Journal of Economic Growth, 10(3), 199–229.CrossRefGoogle Scholar
  12. Bigsten, A., Collier, P., Dercon, S., Fafchamps, M., Gauthier, B., Gunning, J., et al. (2004). Do African manufacturing firms learn from exporting? Journal of Development Studies, 40(3), 115–141.CrossRefGoogle Scholar
  13. Bigsten, A., & Gebreeyesus, M. (2007). The small, the young, and the productive: Determinants of manufacturing firm growth in Ethiopia. Economic Development and Cultural Change, 55(4), 813–840.CrossRefGoogle Scholar
  14. Blasnik, M. (1998). LMS: Stata module to perform least median squares regression fit. Boston College Department of Economics, Statistical Software Components number S358301. Boston, MA: Boston CollegeGoogle Scholar
  15. Blau, D. M. (1985). Self-employment and self-selection in developing country labor markets. Southern Economic Journal, 52(2), 351–363.CrossRefGoogle Scholar
  16. Bottazzi, G., Coad, A., Jacoby, N., & Secchi, A. (2011). Corporate growth and industrial dynamics: Evidence from French manufacturing. Applied Economics, 43(1), 103–116.Google Scholar
  17. Clerides, S., Lauch, S., & Tybout, J. R. (1998). Is Learning by exporting important? Micro-dynamic evidence from Colombia, Mexico and Morocco. Quarterly Journal of Economics, 63, 903–947.Google Scholar
  18. Coad, A. (2007). A closer look at serial growth rate correlation. Review of Industrial Organization, 31(1), 69–82.CrossRefGoogle Scholar
  19. Coad, A. (2009). The growth of firms: A survey of theories and empirical evidence. Cheltenham, UK: Edward Elgar.Google Scholar
  20. Coad, A. (2010). Investigating the exponential age distribution of firms. Economics: The Open-Access, Open-Assessment E-Journal, 4, 2010-17.Google Scholar
  21. Coad, A., & Tamvada, J. P. (2008). The growth and decline of small firms in developing countries. Papers on Economics and Evolution 2008-08. Jena: Max Planck Institute of Economics.Google Scholar
  22. Das, S. (1995). Size, age and firm growth in an infant industry: The computer hardware industry in India. International Journal of Industrial Organization, 13(1), 111–126.CrossRefGoogle Scholar
  23. Dunne, T., Roberts, M., & Samuelson, L. (1989). The growth and failure of US manufacturing plants. Quarterly Journal of Economics, 104(4), 671–698.CrossRefGoogle Scholar
  24. El-Namaki, M. S. S. (1988). Encouraging entrepreneurs in developing countries. Long Range Planning, 21(4), 98–106.CrossRefGoogle Scholar
  25. Evans, D. S. (1987a). The relationship between firm growth, size and age: Estimates for 100 manufacturing industries. Journal of Industrial Economics, 35, 567–581.CrossRefGoogle Scholar
  26. Evans, D. S. (1987b). Tests of alternative theories of firm growth. Journal of Political Economy, 95(4), 657–674.CrossRefGoogle Scholar
  27. Fields, G. S. (2005). A guide to multisector labor market models. Social Protection Discussion Paper Series No. 0505. Washington D.C.: World Bank.Google Scholar
  28. Fizaine, F. (1968). Analyse statistique de la croissance des entreprises selon l’age et la taille. Revue d’économie politique, 78, 606–620.Google Scholar
  29. Geroski, P. A. (1995). What do we know about entry? International Journal of Industrial Organization, 13, 421–440.CrossRefGoogle Scholar
  30. Geroski, P. A., & Gugler, K. (2004). Corporate growth convergence in Europe. Oxford Economic Papers, 56, 597–620.CrossRefGoogle Scholar
  31. Giloni, A., Simonoff, J. S., & Sengupta, B. (2006). Robust weighted LAD regression. Computational Statistics and Data Analysis, 50, 3124–3140.CrossRefGoogle Scholar
  32. Grossman, G., Helpman, E. (1991). Innovation and growth in the world economy. Cambridge, MA: MIT PressGoogle Scholar
  33. Günther, I., & Launov, A. (2006). Competitive and segmented informal labor markets. IZA Discussion Papers 2349. Bonn: Institute for the Study of Labor (IZA).Google Scholar
  34. Harris, J. R., & Todaro, M. P. (1970). Migration, unemployment and development: A two sector analysis. American Economic Review, 60(1), 126–142.Google Scholar
  35. Hisrich, R. D., & Ozturk, S. A. (1999). Women entrepreneurs in a developing economy. Journal of Management Development, 18(2), 114–124.CrossRefGoogle Scholar
  36. Huergo, E., & Jaumandreu, J. (2004). How does probability of innovation change with firm age? Small Business Economics, 22(3), 193–207.CrossRefGoogle Scholar
  37. Kochhar, K., Kumar, U., Rajan, R., Subramanian, A., & Tokatlidis, I. (2006). India’s pattern of development: What happened, what follows? Journal of Monetary Economics, 53(5), 981–1019.CrossRefGoogle Scholar
  38. Kozan, M., Oksoy, D., & Ozsoy, O. (2006). Growth plans of small businesses in Turkey: Individual and environmental influences. Journal of Small Business Management, 44(1), 114–129.CrossRefGoogle Scholar
  39. Krishna, P., & Mitra, D. (1998). Trade liberalization, market discipline and productivity growth: New evidence from India. Journal of Development Economics, 56(2), 447–462.CrossRefGoogle Scholar
  40. Leff, N. H. (1979). Entrepreneurship and economic development: The problem revisited. Journal of Economic Literature, 17, 46–64.Google Scholar
  41. Little, I. M. D. (1987). Small manufacturing enterprises in developing countries. World Bank Economic Review, 1(2), 203–235.CrossRefGoogle Scholar
  42. Liu, J., Tsou, M., & Hammitt, J. (1999). Do small plants grow faster? Evidence from the Taiwan electronics industry. Economics Letters, 65(1), 121–129.CrossRefGoogle Scholar
  43. Maloney, W. F. (2004). Informality revisited. World Development, 32 (7), 1159–1178.Google Scholar
  44. McPherson, M. A. (1996). Growth of micro and small enterprises in Southern Africa. Journal of Development Economics, 48, 253–277.CrossRefGoogle Scholar
  45. Mead, D. C., & Liedholm, C. (1998). The dynamics of micro and small enterprises in developing countries. World Development, 26, 61–74.CrossRefGoogle Scholar
  46. MSME. (2009). Annual Report 2008–2009, Ministry of Micro, Small and Medium Enterprises, Government of India. Available at: http://msme.gov.in. Accessed 21 May 2010.
  47. Nafziger, E., & Terrell, D. (1996). Entrepreneurial human capital and the long-run survival of firms in India. World Development, 24(4), 689–696.CrossRefGoogle Scholar
  48. Pavitt, K., Robson, M., & Townsend, J. (1987). The size distribution of innovating firms in the UK: 1945–1983. Journal of Industrial Economics, 35(3), 297–316.CrossRefGoogle Scholar
  49. Phillips, B., & Kirchhoff, B. (1989). Formation, growth and survival; small firm dynamics in the US economy. Small Business Economics, 1(1), 65–74.CrossRefGoogle Scholar
  50. Reichstein, T., & Dahl, M. (2004). Are firm growth rates random? Analysing patterns and dependencies. International Review of Applied Economics, 18(2), 225–246.CrossRefGoogle Scholar
  51. Robson, P., & Obeng, B. (2008). The barriers to growth in Ghana. Small Business Economics, 30(4), 385–403.CrossRefGoogle Scholar
  52. Rodrik, D., & Subramanian, A. (2005). From ‘Hindu growth’ to productivity surge: The mystery of the Indian growth transition. IMF Staff Papers 52(2). Washington D.C.: International Monetary Fund.Google Scholar
  53. Rogerson, C. (1996). Urban poverty and the informal economy in South Africa’s economic heartland. Environment and Urbanization, 8(1), 167.CrossRefGoogle Scholar
  54. Rousseeuw, P. J., & Leroy, A. (1987). Robust regression and outlier detection. Wiley series in probability and mathematical statistics. New York: Wiley.CrossRefGoogle Scholar
  55. Santarelli, E., & Vivarelli, M. (2007). Entrepreneurship and the process of firms’ entry, survival and growth. Industrial and Corporate Change, 16(3), 455–488.CrossRefGoogle Scholar
  56. Shanmugam, K., & Bhaduri, S. (2002). Size, age and firm growth in the Indian manufacturing sector. Applied Economics Letters, 9(9), 607–613.CrossRefGoogle Scholar
  57. SIDBI. (2001). SIDBI Report on Small Scale Industries Sector, Small Industries Development Bank of India. Available at: http://dcmsme.gov.in/publications/traderep/sidbirep.pdf. Accessed 21 May 2010.
  58. Singh, S. P., Reynolds, R. G., & Muhammad, S. (2001). A gender-based performance analysis of micro and small enterprises in Java, Indonesia. Journal of Small Business Management, 39(2), 174–182.CrossRefGoogle Scholar
  59. Sleuwaegen, L., & Goedhuys, M. (2002). Growth of firms in developing countries, evidence from Côte d’Ivoire. Journal of Development Economics, 68(1), 117–135.CrossRefGoogle Scholar
  60. Stinchcombe, A. (1965). Social structure and organizations, Chapter 4. In J. G. March (Ed.), Handbook of organizations (pp. 142–193). Chicago, IL: Rand McNally & Company.Google Scholar
  61. Tamvada, J. P. (2007). Essays on entrepreneurship and economic development. PhD thesis. Goettingen: University of Goettingen.Google Scholar
  62. Tamvada, J. P. (2010). Entrepreneurship and welfare. Small Business Economics, 34(1), 65–79.CrossRefGoogle Scholar
  63. Thorson, J. A. (1994). The use of least median of squares in the estimation of land value equations. Journal of Real Estate Finance and Economics, 8, 183–190.CrossRefGoogle Scholar
  64. Tybout, J. R. (2000). Manufacturing firms in developing countries: How well do they do, and why? Journal of Economic Literature, 38, 11–44.CrossRefGoogle Scholar
  65. Variyam, J. N., & Kraybill, D. S. (1992). Empirical evidence on determinants of firm growth. Economics Letters, 38, 31–36.CrossRefGoogle Scholar
  66. Wennekers, S., Van Stel, A., Thurik, R., & Reynolds, P. (2005). Nascent entrepreneurship and the level of economic development. Small Business Economics, 24(3), 293–309.CrossRefGoogle Scholar
  67. Western, B. (1995). Concepts and suggestions for Robust Regression Analysis. American Journal of Political Science, 39(3), 786–817.CrossRefGoogle Scholar
  68. Yasuda, T. (2005). Firm growth, size, age and behavior in Japanese manufacturing. Small Business Economics, 24(1), 1–15.CrossRefGoogle Scholar
  69. You, J.-I. (1995). Small firms in economic theory. Cambridge Journal of Economics, 19, 441–462.Google Scholar

Copyright information

© Springer Science+Business Media, LLC. 2011

Authors and Affiliations

  1. 1.Science and Technology Policy Research (SPRU)University of Sussex Freeman CentreFalmer, BrightonUK
  2. 2.Aston Business SchoolAston UniversityAston Triangle, BirminghamUK
  3. 3.Max Planck Institute of EconomicsJenaGermany

Personalised recommendations