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The World Bank Economic Review Advance Access published online on September 6, 2006
The World Bank Economic Review, doi:10.1093/wber/lhl005
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© The Author 2006. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org

Article

Microenterprise Dynamics in Developing Countries: How Similar are They to Those in the Industrialized World? Evidence from Mexico

Pablo Fajnzylber 1 *, William Maloney 2, and Gabriel Montes Rojas 3

1 Senior Economist in the Private Sector Development unit for Latin America and Caribbean at the World Bank
2 Lead Economist in the Office of the Chief Economist for Latin America at the World Bank
3 PhD Student in Economics at University of Illinois, Urbana-Champaign

* To whom correspondence should be addressed.
Pablo Fajnzylber, E-mail: pfajnzylber{at}worldbank.org


  Abstract

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.


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