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Institutions and investment climate for small entrepreneurship in developing countries.

Chemin, Matthieu (2007) Institutions and investment climate for small entrepreneurship in developing countries. PhD thesis, London School of Economics and Political Science (United Kingdom).

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Abstract

It is well recognised today that improving the investment climate fosters productive private investment and is the key to sustainable growth. However, the question remains whether an improvement in the investment climate would benefit the poor. In this thesis, I focus in particular on two institutions of prime importance for small informal entrepreneurs in developing countries who lack bargaining power and resources: the courts to enforce contracts and the financial markets to get access to credit. Chapter 2 examines how the case pendency rate in state courts in India affects the contracting behaviour of small non-agricultural informal firms. My estimates suggest that a slow judiciary implies more breaches of contract, discourages firms from undertaking relationship-specific investments, impedes the access of firms to formal financial institutions, and favours inefficient dynasties. This chapter leaves an important question open. Chapter 3 examines the reasons as to why the judiciary is so congested in India. I find that amendments increasing the number or complexity of procedures to be followed by the Courts and that the ambiguity in the Code of Civil Procedure increase the expected duration of a trial in High Courts. Using the spatial and temporal variation in the enactment of amendments and occurrence of conflicting decisions as instrumental variables for the expected duration of a trial in High Court, I am then able to measure the impact of judiciary's speed on credit markets, agricultural development and manufacturing performance. Another key feature of a good investment climate is the access to credit markets. Chapter 4 assesses how an improvement in the access to finance through microfinance can benefit the poor directly. Using the technique of matching, this chapter shows a positive effect of microfinance on the expenditure per capita, the supply of labour, the level of enrolment in school of boys and girls. For instance, participants spend 3% more on average than non-participants. Interestingly, participants do not spend more than non-participants in treatment villages. This seems to indicate positive externalities.

Item Type: Thesis (PhD)
Uncontrolled Keywords: Economics, General, Business Administration, Entrepreneurship
Sets: Collections > ProQuest Etheses
URI: http://etheses.lse.ac.uk/id/eprint/2708

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