The World Bank Economic Review Advance Access originally published online on September 6, 2006
The World Bank Economic Review 2006 20(3):389-419; doi:10.1093/wber/lhl005
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Microenterprise Dynamics in Developing Countries: How Similar are They to Those in the Industrialized World? Evidence from Mexico
Pablo Fajnzylber is senior economist in the Private Sector Development unit for Latin America and the Caribbean at the World Bank; his email address is pfajnzylber{at}worldbank.org.
William F. Maloney is lead economist in the Office of the Chief Economist for Latin America at the World Bank; his email address is wmaloney{at}worldbank.org.
Gabriel Montes Rojas is a PhD student in economics at the University of Illinois, Urbana-Champaign; his email address is rmontes{at}uiuc.edu.
A rich panel data set from Mexico is used to study the patterns of entry, exit, and growth of microenterprises and to compare these with the findings of the mainstream theoretical and empirical work on firm dynamics. The Mexican self-employment sector is much larger than its counterpart in the United States, which is reflected in higher unconditional rates of entry into the sector. The evidence for Mexico points to the significant presence of well-performing salaried workers among the likely entrants into self-employment, as opposed to the higher incidence of poorer wageworkers among the entrants into the U.S. self-employment sector. Despite these differences, however, the patterns of entry, survival, and growth with respect to age, education, and many other covariates are very similar in Mexico and the United States. These strong similarities suggest that mainstream models of worker decisions and firm behavior are useful guides for policymaking for the developing-country microenterprise sector. Furthermore, they suggest that, as a first approximation, the developing-country microenterprise should probably be viewed as they are in the advanced countries as offering potentially desirable job opportunities to low-productivity workers.