Small Business Economics

, Volume 42, Issue 3, pp 611–620 | Cite as

Can franchising be an economic development strategy? An empirical investigation

  • Steven C. MichaelEmail author


Prior research has examined why franchisors expand abroad, but no paper has empirically examined the role of franchising in the macroeconomy of developing nations. In this paper, the pattern of franchising development is statistically analyzed within the context of the general economic development of Latin America. It is found that franchising leads, rather than follows, economic development. Implications for theory and policy are considered.


Franchising Economic development Organizational form Competition International business 

JEL Classification




I thank Pat Kaufmann, Marko Grunhagen, and the editor and referees for helpful comments and suggestions. The remaining errors are mine alone.


  1. Agarwal, S., & Ramaswami, S. N. (1992). Choice of foreign market entry mode: Impact of ownership, location, and internalization factors. Journal of International Business Studies,, 23, 1–27.Google Scholar
  2. Arthur Andersen. (1996). International expansion by US franchisors. Chicago: Arthur Andersen.Google Scholar
  3. Aydin, N., & Kacker, M. (1990). International outlook of US-based franchisers. International Marketing Review, 7(2), 43–53.CrossRefGoogle Scholar
  4. Baumol, W. J., Litan, R. E., & Schramm, C. J. (2007). Good capitalism, bad capitalism, and the economics of growth and prosperity. New Haven: Yale University Press.Google Scholar
  5. Beck, S. (2010). Franchising in frontier markets. Innovations: Technology, Governance, Globalization, 5(1), 153–162.CrossRefGoogle Scholar
  6. Block, J. H., Hoogerheide, L. F., & Thurik, A. R. (2013). Education and entrepreneurial choice: An instrumental variables analysis. International Small Business Journal, 31(1), 23–33.CrossRefGoogle Scholar
  7. Brock, W., & Evans, D. S. (1986). The economics of small business. New York: Holmes and Meier.Google Scholar
  8. Cali, M., Ellis, K., & te Velde, D. W. (2008). The contribution of services to development: The role of regulation and trade liberalisation. ODI project briefings (Vol. 17). London, UK: Overseas Development Institute.Google Scholar
  9. Carree, M., van Stel, A., Thurik, R., & Wennekers, S. (2002). Economic development and business ownership: An analysis using data of 23 OECD countries in the period 1976–1996. Small Business Economics, 19(3), 271–290.CrossRefGoogle Scholar
  10. Carree, M., van Stel, A., Thurik, R., & Wennekers, S. (2007). The relationship between economic development and business ownership revisited. Entrepreneurship and Regional Development, 19(3), 281.CrossRefGoogle Scholar
  11. Caves, R. E. (1998). Research on international business: Problems and prospects. Journal of International Business Studies, 29(1), 5–19.CrossRefGoogle Scholar
  12. Caves, R. E., & Murphy, W. F. (1976). Franchising: Firms, markets, and intangible assets. Southern Economic Journal, 42(April), 572–586.CrossRefGoogle Scholar
  13. Christensen, L., Lehr, D., & Fairbourne, J. (2010). A good business for poor people. Stanford Social Innovation Review, 8(3), 44–49.Google Scholar
  14. Combs, J. G., Michael, S. C., & Castrogiovanni, G. J. (2004). Franchising: A review and avenues to greater theoretical diversity. Journal of Management, 30(6), 907–931.CrossRefGoogle Scholar
  15. Dicke, T. S. (1992). Franchising in America: The development of a business method, 1840–1980. Chapel Hill, NC: University of North Carolina Press.Google Scholar
  16. Fladmoe-Lindquist, K. (1996). International franchising: Capabilities and development. Journal of Business Venturing, 11, 419–438.CrossRefGoogle Scholar
  17. Fladmoe-Lindquist, K., & Jacque, L. L. (1995). Control modes in international service operations: The propensity to franchise. Management Science, 41(7), 1238–1249.CrossRefGoogle Scholar
  18. Granger, C. W. J., & Newbold, P. (1977). Forecasting economic time series. New York: Academic.Google Scholar
  19. Grunhagen, M., & Witte, C. L. (2005). The role of franchising as a driver of economic development for emerging economies. Journal of Business, Industry and Economics, 5(1), 27–45.Google Scholar
  20. Heskett, J. L. (1986). Managing in the service economy. Boston: Harvard Business School.Google Scholar
  21. Hoy, F., Stanworth, J., & Purdy, D. (2000). An entrepreneurial slant to franchise research. In D. L. Sexton & H. Landstrom (Eds.), The Blackwell handbook of entrepreneurship (pp. 408–432). Malden, MA: Blackwell Publishers.Google Scholar
  22. Hunt, S. D. (1972). The socioeconomic consequences of the franchise system of distribution. Journal of Marketing, 36(3), 32–38.CrossRefGoogle Scholar
  23. Huszagh, S. M., Huszagh, F. W., & McIntyre, F. S. (1992). International franchising in the context of competitive strategy and the theory of the firm. International Marketing Review, 9(5), 5–18.CrossRefGoogle Scholar
  24. Kaufmann, P. J., & Leibenstein, H. (1988). International business format franchising and retail entrepreneurship: A possible source of retail know-how for developing countries. Journal of Development Planning, 18, 165–179.Google Scholar
  25. Kilby, P. (1971). Entrepreneurship and economic development. New York: Free Press.Google Scholar
  26. Knott, A. M. (2003). The organizational routines factor market paradox. Strategic Management Journal, 24(10), 929–943.CrossRefGoogle Scholar
  27. Lafontaine, F. (1992). Agency theory and franchising: Some empirical results. RAND Journal of Economics, 23(2), 263–283.CrossRefGoogle Scholar
  28. Levine, R., & Renelt, D. (1992). A sensitivity analysis of cross-country growth regressions. The American Economic Review, 82(4), 942–963.Google Scholar
  29. Love, J. F. (1986). McDonald’s: Behind the arches. New York: Bantam.Google Scholar
  30. Mahoney, J. T. (1992). The adoption of the multidivisional form of organization: A contingency model. Journal of Management Studies, 29(1), 49–72.CrossRefGoogle Scholar
  31. Michael, S. C. (1999). The elasticity of franchising. Small Business Economics, 12(4), 313–320.CrossRefGoogle Scholar
  32. Michael, S. C. (2003). Determinants of the rate of franchising among nations. Management International Review, 43(3), 267–290.Google Scholar
  33. Michael, S. C., & Moore, H. J. (1995). Returns to franchising. Journal of Corporate Finance, 2(1–2), 133–155.CrossRefGoogle Scholar
  34. Michael, S. C., & Pearce, J. A. (2009). The need for innovation as a rationale for government involvement in entrepreneurship. Entrepreneurship and Regional Development, 21(3), 285–302.CrossRefGoogle Scholar
  35. Organization for Economic Cooperation and Development. (2000). The service economy. Paris, France: Organization for Economic Cooperation and Development.Google Scholar
  36. Preble, J. F. (1995). Franchising systems around the globe: A status report. Journal of Small Business Management, 33(2), 80.Google Scholar
  37. Rubin, P. H. (1978). The theory of the firm and the structure of the franchise contract. Journal of Law and Economics, 21(1), 223–233.CrossRefGoogle Scholar
  38. Shane, S. (1996). Why franchise companies expand overseas. Journal of Business Venturing, 11(2), 73–88.CrossRefGoogle Scholar
  39. Shook, C., & Shook, R. L. (1993). Franchising: The business strategy that changed the world. Englewood Cliffs, NJ: Prentice Hall.Google Scholar
  40. Stock, J. H., & Watson, M. W. (2001). Vector autoregressions. The Journal of Economic Perspectives, 15(4), 101–115.CrossRefGoogle Scholar
  41. van Stel, A., Carree, M., & Thurik, R. (2005). The effect of entrepreneurial activity on national economic growth. Small Business Economics, 24(3), 311–321.CrossRefGoogle Scholar
  42. Watson, J. L. (1997). Golden arches east: McDonald’s in east Asia. Stanford, CA: Stanford University Press.Google Scholar
  43. Welsh, D. H. B., Alon, I., & Falbe, C. M. (2006). An examination of international retail franchising in emerging markets. Journal of Small Business Management, 44(1), 130–149.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.College of BusinessUniversity of Illinois Urbana ChampaignChampaignUSA

Personalised recommendations