Growth of Micro-Enterprises: Empirical evidence from Ethiopia

The role of micro and small enterprises (MSEs) in employment and income generation is increasingly recognized and has become a major playing field for policy makers and donors with dual objective of enhancing growth and alleviating poverty. This study investigates some key determinants of success and particularly employment expansion among micro-enterprises based on a survey covering 974 randomly selected businesses in six major towns in Ethiopia. Empirical literature on MSEs growth is scant in the sub-Saharan Africa and the gap is even more evident when it comes to micro-enterprises. Growth of micro-enterprises measured in terms of employment since start is affected by a variety of factors. Firm’s initial size and age are inversely related with growth providing evidence that smaller and younger firms grow faster than larger and older firms and consistent with the learning hypothesis but contrary to the Gibrat’s law. Entrepreneurs with some business experience and high school complete and with some college years grow faster. Firms in manufacturing and service sectors, located at traditional market and those male-headed grow rapidly than their counterparts. Firms with business license also grow faster than those operating without license. In the absence of formal source of credit, informal networks such as, trade credit and other informal sources enhance business expansion. Policies and support programs that aim at promoting MSEs, therefore, need to take account of the heterogeneity nature of these enterprises and entrepreneurs