Drivers of Entrepreneurship and Post-Entry Performance of Newborn Firms in Developing Countries - Working Paper

Quatraro and Vivarelli offer us a review of the latest research in "Drivers of Entrepreneurship and Post-Entry Performance of Newborn Firms in Developing Countries", that I believe bring some interesting questions around livelihoods and local economic development and also tags along nicely to my previous post on "Non-Farm Enterprises"

Abstract:     

"The aim of this paper is to provide an updated survey of the "state of the art" in entrepreneurial studies with a particular focus on developing countries (DCs). In particular, the concept of "entrepreneurship" is critically discussed, followed by a discussion of the institutional, macroeconomic, and microeconomic conditions that affect the entry of new firms and the post-entry performance of newborn firms. The reviewed literature bears some policy implications for the support of the creation new firms, such as the targeting of policy measures to prospective entrepreneurs who possess high education levels, long previous job experience, and innovative skills. Specifically, for DCs, tailored subsidies and support should be coupled with framework and infrastructural policies that are able to improve the business environment such that new ventures can start and grow."

Findings of relevance for programming are:
- Minimum Efficient Scale (Size matters). Risk of failure dramatically drops once it gets to its MES. Programming could be built around benchmarks like MES that allow for reallocation of resources towards more at risk business, instead of a fixed/same across the board timeline. This would also imply that each business may have a different growth objective/requirement (and not just slightly above break even) depending on the sector.
- Previous experience in the sector. While this may seem an obvious, sometimes selection criteria for interventions are based on needs rather than chances of success. Programme design has to be clear on what is aiming for (temporary relief or longer term livelihood) and act accordingly. 
- Financial. Credit constrains may have been overplayed as an obstacle to enterprise survival and maybe the focus should be more on savings rather than borrowing. Microfinance user may actually using it in that manner, as some studies have shown negative returns (they may actually be losing money) but positive savings (they save money in comparison with the previous situation). There is an increasing shift towards savings but the rethoric still remains around credit constrains.
- Education is a mixed bag. Higher level education reduces the chances of starting up, probably because the first preference is salaried labour (and seeking to avoid defensive entrepreneurship) that education gives access to. On the other hand, education is a high predictor of business growth and survival. It is interesting to note that there is a "threshold effect" depending on context/location, were there is a minimum level of education that leads to faster growth. Being able to identify that level for the target area may help in yielding better results. Then again we encounter the issue of selection criteria and programming priorities.
- Unemployment is negatively correlated with enterprise survival. Previous unemployment increases the risk of failure and tends to be linked to lower economic outcomes and job creation. Much programming is built around entrepreneurship for unemployed youth, wouldn't it be better to have a two staged/tiered system where unemployed would initially be waged labour (and gaining sector experience at the same time) before start-up is considered?
- Minorities. I am troubled with their recommendation of specific support to entrepreneurial minorities. While this may make sense from an economic point of view (building on an existing strength), the political and social risks of such actions can be large. Business minorities have been violently targeted even in recent times, and a policy that singles them out in a sector they may already have a comparative advantage will only fuel negative perceptions.