A decade on: how relevant is the regulatory environment for micro and small enterprise upgrading after all?

Altenburg, Tilman / Aimée Hampel-Milagrosa / Markus Loewe
Externe Publikationen (2016)

in: The European Journal of Development Research 29 (2), 457-475

DOI: doi:10.1057/s41287-016-0010-2
Information

Micro and small enterprises in developing countries rarely upgrade and grow. The reasons are disputed. Recently, the ‘Doing Business’ reports strongly influenced the policy agenda, attributing small enterprise stagnation mainly to excessive bureaucracy and over-regulation. They claim a strong causal relationship running from regulatory reform and formalisation to business performance and overall economic growth and advocate reforms to reduce the complexity and cost of regulation. Our findings from research in the Philippines, India and Egypt challenge this view. Bureaucratic hurdles are of secondary importance. Entrepreneurs who want to formalise are usually able to do so. Formalisation usually comes after a firm has upgraded, i.e. when the entrepreneur perceives that the advantages of formalisation outweigh its disadvantages. Success in upgrading is strongly related to entrepreneurial attitudes and skills: know-how, proactive search for market opportunities, risk-taking attitude and creativity in dealing with financial constraints and deficits in the rule of law.

About the authors

Altenburg, Tilman

Economic Geographer

Tilman Altenburg

Hampel-Milagrosa, Aimée

Institutional and Agricultural Economist

Aimée Hampel-Milagrosa

Loewe, Markus

Economist

Markus Loewe

Further experts

Schwachula, Anna

Sociologist 

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