An analysis of financial issues faced by microenterprises in Mexico

Authors

Heikki Heino, University of Texas-Pan American

Date of Award

12-2000

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

International Business

First Advisor

Dr. Jose A. Pagan

Second Advisor

Dr. George Avellano

Third Advisor

Dr. Jose A. Tijerina

Abstract

The economic and social role of microenterprises in developing countries is well recognized. Research has shown that the importance of microenterprises in economic development derives from the fact that small firms use labor intensively rather than capital. In the case of Mexico, microenterprises employ over 20 percent of the working age population. Moreover, from 1991 to 1995 the number of microenterprises operating in Mexico increased from 5.7 to 6.1 million firms.

Given the role that microenterprises play in employment creation, a natural research question that arises is then, “how microenterprises are created and survive under credit market imperfections.” A general model of microenterprise survival in Mexico—a model in which microenterprise profitability, the owner's demographic characteristics, and the dynamic characteristics of the microenterprises, operating under credit market imperfections are controlled for—would enrich our understanding of entrepreneurial life expectancy.

Using microdata from Mexico's National Survey of Microenterprises ( Encuesta Nacional de Micronegocios, ENAMIN), four issues are analyzed: First, whether the need for outside start-up capital depends on the owner's socioeconomic background, the expected profitability of the microenterprise and the selected sector of business activity; Second, the role of socioeconomic and financial factors in determining whether an owner borrows from formal or informal credit markets; Third, whether microenterprises face liquidity constraints for start-up capital when it comes to access to formal credit markets; Lastly, which economic and financial microenterprise characteristics might help to predict their survival or failure as well as the average life term (survival spell) of firms.

The findings of this dissertation show that there is substantial heterogeneity in the socioeconomic background of borrowers, as well as in the sources for start-up capital employed by microenterprises in Mexico. Moreover, there is clear evidence of liquidity constraints in the market for start-up capital that could hinder the creation and growth of small enterprises. Lastly, there is also some evidence that the initial source of financing affects significantly the survival rates of microenterprises.

Comments

Copyright 2000 Heikki Heino. All Rights Reserved.

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Granting Institution

University of Texas-Pan American