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Start‐up Capital, Microenterprises and Technical Efficiency in Mexico
Author(s) -
HernándezTrillo Fausto,
Pagán José A.,
Paxton Julia
Publication year - 2005
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2005.00286.x
Subject(s) - inefficiency , loan , production (economics) , capital (architecture) , economics , frontier , production–possibility frontier , production function , stochastic frontier analysis , function (biology) , finance , monetary economics , business , microeconomics , archaeology , evolutionary biology , biology , history
Access to adequate start‐up capital has been identified as an important deterrent to microenteprise development and growth. Using firm level data from Mexico's National Survey of Microenterprises, we estimate a stochastic frontier production function with inefficiency effects related to the main sources of start‐up capital. Microenterprises utilizing bank loans, carryover business capital, moneylenders and credit from clients and suppliers are more technically efficient than those relying on family, friends and on own financial sources. Bank loans led to the highest degree of technical efficiency, indicating a well‐functioning screening process despite information asymmetries. Banks tend to offer the largest average loan size with the longest terms which are significant factors in allowing microentrepreneurs to overcome financing constraints.