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Working Paper

Credit-Constrained in Risky Activities? : The Determinants of Capital Stocks of Micro and Small Firms in Western Africa

ACCESS TO CAPITAL ACCESS TO CREDIT ACCESS TO FINANCE ACCESS TO FORMAL CREDIT ACCOUNTS ACCUMULATION RATE ADVANCED ECONOMIES ADVANCED ECONOMY AGRICULTURAL ECONOMICS BANK CREDIT BANK POLICY BARRIERS TO ENTRY BIASES BORROWING BUSINESS ACTIVITIES BUSINESS ACTIVITY BUSINESS ASSOCIATIONS BUSINESS ECONOMICS BUSINESS OWNERS BUSINESS RISK BUSINESS RISKS CAPACITY BUILDING CAPITAL ACCUMULATION CAPITAL CONSTRAINT CAPITAL CONSTRAINTS CAPITAL COST CAPITAL COSTS CAPITAL INJECTION CAPITAL MARKET CAPITAL MARKETS CAPITAL REQUIREMENTS CAPITAL RETURNS CAPITAL SHORTAGES CAPITAL STOCK CAPITAL STOCKS CHECKS COLLATERAL CONTRACTUAL OBLIGATIONS COST OF CAPITAL CREDIT CONSTRAINED FIRMS CREDIT CONSTRAINT CREDIT CONSTRAINTS CREDIT HISTORY CREDIT INSTITUTIONS CREDIT MARKET CREDIT MARKETS CREDIT RATIONING DEGREES OF RISK DEMOGRAPHIC CHARACTERISTICS DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPMENT ECONOMICS DIVERSIFICATION DUMMY VARIABLE DUMMY VARIABLES DURABLE DURABLE GOODS EARNINGS ECONOMETRIC MODELS ECONOMIC CONSTRAINTS ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC POLICIES ECONOMIC STATISTICS ENDOWMENTS ENTERPRISE PERFORMANCE ENTREPRENEUR ENTREPRENEURIAL ACTIVITIES ENTREPRENEURIAL ACTIVITY ENTREPRENEURS ENTRY BARRIERS EQUIPMENT EXCESSIVE RISK EXPECTED UTILITY EXPECTED VALUE EXPENDITURE EXPENDITURES EXTERNAL FINANCE FAMILY FINANCE FAMILY LOANS FARMERS FEMALE ENTREPRENEURS FINANCIAL MEANS FINANCIAL RESOURCES FINANCIAL SUPPORT FIXED COSTS FORMAL BANKS GDP GROUP OF FIRMS GROWTH THEORY HIGH INTEREST RATES HOLDING HOUSEHOLD WEALTH HOUSEHOLDS HUMAN CAPITAL INCOME GROWTH INFORMATION ASYMMETRIES INFORMATION ON ENTREPRENEURS INFORMATION ON INVESTMENT INSTRUMENT INSURANCE INSURANCE MARKET INSURANCE MARKETS INSURANCE PRODUCTS INTEREST RATE INTERNAL FINANCE INTERNAL FUNDS INVENTORIES INVENTORY INVESTING INVESTMENT BEHAVIOR JOB CREATION LABOR FORCE SURVEY LABOR MARKET LABOR MARKETS LACK OF ACCESS LEVEL OF RISK LIQUID WEALTH LIQUIDITY LIQUIDITY CONSTRAINT LIQUIDITY CONSTRAINTS LIQUIDITY PREMIUM LIQUIDITY PROBLEMS LOAN LOTTERY MARGINAL COST MARGINAL PRODUCT MARGINAL UTILITY MARGINAL UTILITY OF CONSUMPTION MARKET CONSTRAINTS MARKET ECONOMY MARKET FAILURE MARKET FAILURES MARKET INTEREST RATE MARKET INTEREST RATES MICRO DATA MICRO ENTERPRISES MICRO-CREDIT MICRO-ENTERPRISE MICRO-FINANCE MICRO-FINANCE INSTITUTIONS MICROCREDIT MICROENTERPRISES MIDDLE INCOME COUNTRIES MONEY LENDERS MONEYLENDERS MORAL HAZARD OPPORTUNITY COST OPPORTUNITY COSTS PHYSICAL CAPITAL POLITICAL ECONOMY PORTFOLIO PRICE RISK PRICE UNCERTAINTY PRODUCTION FUNCTION PRODUCTIVE INVESTMENT PROFITABILITY PURCHASING POWER PURCHASING POWER PARITY RATE OF RETURN RATES OF RETURN RECEIPTS REINVESTMENT RETAINED EARNINGS RISK AVERSION RISK PERCEPTIONS RISK PREMIUM RISK-AVERSE INDIVIDUALS SAFE ASSET SAVINGS SELF-EMPLOYMENT SMALL BUSINESS SMALL ENTERPRISES SMALL-SCALE ENTREPRENEURS SOURCE OF CREDIT SOURCES OF FINANCE START-UP TAX TAXIS TRADE SECTOR TRADING TRANSITION COUNTRY TRANSITION ECONOMY TRUST FUND UNION VALUE ADDED WEALTH
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World Bank, Washington, DC
Africa | West Africa
2017-05-30T20:58:40Z | 2017-05-30T20:58:40Z | 2012-05

Micro and Small Enterprises (MSEs) in developing countries are typically considered to be severely credit constrained. Additionally, high business risks may partly explain why capital stocks of MSEs remain low. This article analyzes the determinants of capital stocks of MSEs in poor economies focusing on credit constraints and risk. The analysis is based on a unique, albeit cross sectional but backward looking, micro data set on MSEs covering the economic capitals of seven West-African countries. The main result is that capital market imperfections indeed seem to explain an important part of the variation in capital stocks in the early lifetime of MSEs. Furthermore, the analyses show that risk plays a key role for capital accumulation. Risk-averse individuals seem to adjust their initially low capital stocks upwards when enterprises grow older. MSEs in risky activities owned by wealthy individuals even seem to over-invest when they start their business and adjust capital stocks downwards subsequently. As other firms simultaneously suffer from capital shortages, such behavior may imply large inefficiencies.

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