Start-up capital, microenterprises and technical efficiency in Mexico

Fausto Hernández-Trillo, José A. Pagán, Julia Paxton

Research output: Contribution to journalReview articlepeer-review


Access to adequate start-up capital has been identified as an important deterrent to microenteprise development and growth. Using firm level data from Mexico's National Survey of Microenterprises, we estimate a stochastic frontier production function with inefficiency effects related to the main sources of start-up capital. Microenterprises utilizing bank loans, carryover business capital, moneylenders and credit from clients and suppliers are more technically efficient than those relying on family, friends and on own financial sources. Bank loans led to the highest degree of technical efficiency, indicating a well-functioning screening process despite information asymmetries.Banks tend to offer the largest average loan size with the longest terms which are significant factors in allowing microentrepreneurs to overcome financing constraints.

Original languageEnglish (US)
Pages (from-to)434-447
Number of pages14
JournalReview of Development Economics
Issue number3
StatePublished - Aug 2005

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development


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