Description: Barriers to Entry and Returns to Capital in Informal Activities : Evidence from Sub-Saharan Africa

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Barriers to Entry and Returns to Capital in Informal Activities : Evidence from Sub-Saharan Africa

This paper investigates the patterns of capital entry barriers and capital returns in informal Micro and Small Enterprises (MSE's) using a unique micro data set seven West-African countries. The author's findings support the view of a het...

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Main Authors:	Grimm, Michael, Kruger, Jens, Lay, Jann
Language:	English en_US
Published:	World Bank, Washington, DC 2017
Subjects:	ACCESS TO CAPITAL ACCOUNTS BANK POLICY BARRIER TO ENTRY BORROWING CAPACITY CAPACITY BUILDING CAPITAL ACCUMULATION CAPITAL ALLOCATIONS CAPITAL CONSTRAINT CAPITAL INVESTMENTS CAPITAL MARKET CAPITAL REQUIREMENTS CAPITAL STOCK CHECKS COLLATERAL CREDIT CONSTRAINTS CREDIT PROGRAMS CREDIT PROVIDERS CREDIT RATIONING CURRENCY DECREASING RETURNS DEVELOPING COUNTRY DEVELOPMENT ECONOMICS DISTRIBUTION OF WEALTH ECONOMIC CONSTRAINTS ECONOMIC DEVELOPMENT ECONOMIC GROWTH ELASTICITY ENTRY BARRIERS EQUIPMENT EXOGENOUS VARIABLES EXPENDITURE FACTOR RETURNS FINANCIAL SUPPORT FIRST YEAR FIXED COSTS GDP GDP PER CAPITA GROWTH THEORY HOUSEHOLD WEALTH INCOME DISTRIBUTION INCOME LEVELS INFORMAL CREDIT INSTRUMENT INTEREST PAYMENTS INVENTORY INVESTING INVESTMENT BEHAVIOR LABOR MARKETS LEVEL OF CAPITAL LIQUIDITY LIQUIDITY CONSTRAINTS MACROECONOMICS MARGINAL RATE OF RETURN MARGINAL RETURN TO CAPITAL MARKET CONSTRAINTS MARKET IMPERFECTIONS MICRO DATA MICRO-CREDIT MICROENTERPRISES MONEY LENDERS POLITICAL ECONOMY PORTFOLIOS PROFITABILITY PURCHASING POWER RATES OF RETURNS RETURNS RISK AVERSE RISK AVERSION STATIC ANALYSIS TAX TOTAL CAPITAL STOCK TRADE SECTOR TRADER TRADING TRUST FUND UNIT OF CAPITAL VALUE ADDED WEALTH
Online Access:	http://documents.worldbank.org/curated/en/195371468313855766/Barriers-to-entry-and-returns-to-capital-in-informal-activities-evidence-from-Sub-Saharan-Africa http://hdl.handle.net/10986/27365

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Summary:	This paper investigates the patterns of capital entry barriers and capital returns in informal Micro and Small Enterprises (MSE's) using a unique micro data set seven West-African countries. The author's findings support the view of a heterogeneous informal sector that is not primarily host to subsistence activities. While an assessment of initial investment identifies some informal activities with negligible entry barriers, a notable cost of entry is associated to most activities. The authors find very heterogeneous patterns of capital returns in informal MSE's. At very low levels of capital, marginal returns are extremely high- often exceeding 70 percent per month. Above a capital stock of 150 international dollars, marginal returns are found to be relatively low at around 4 to 7 percent monthly. The authors provide some evidence that the high returns at low capital stocks reflect high risks. At the same time, most MSE's appear to be severely capital constrained.