Use of borrowed start-up capital and micro enterprises in Mexico: existence of liquidity constraints |
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Authors: | Heikki Heino |
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Institution: | (1) Governors State University, University Park, IL 60417, USA |
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Abstract: | Using the National Survey of Micro enterprises (ENAMIN, Encuesta Nacional de Micronegocios) data I test for the presence of liquidity constraints for obtaining start-up capital in Mexico’s credit markets (formal
and informal). I use the bivariate probit model with partial observability to recognize two important decisions in the credit
allocation process: first, whether an owner of a micro enterprise wants to apply start-up loan and, second, whether financial
institutions decide to provide or not to provide the loan. Finally, I compare the results from this model to those of a simple
probit model that looks at whether a micro enterprise owner gets funding or not (i.e. the probit model implicitly assumes
that no liquidity constraints exist). The findings of this study show that there is substantial heterogeneity in the socioeconomic
background of borrowers, as well as in the sources for start-up capital employed by micro enterprises 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. Applying the findings of the study, policy makers could fundamentally increase the effectiveness in
establishing an economic environment that fosters growth.
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Keywords: | Micro enterprise Microfinance Liquidity constraints Less developed country Emerging market country Mexico |
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