Grimm, MichaelKruger, JensLay, Jann2017-06-272017-06-272011-05https://hdl.handle.net/10986/27365This paper investigates the patterns of capital entry barriers and capital returns in informal Micro and Small Enterprises (MSE's) using a unique micro data set seven West-African countries. The author's findings support the view of a heterogeneous informal sector that is not primarily host to subsistence activities. While an assessment of initial investment identifies some informal activities with negligible entry barriers, a notable cost of entry is associated to most activities. The authors find very heterogeneous patterns of capital returns in informal MSE's. At very low levels of capital, marginal returns are extremely high- often exceeding 70 percent per month. Above a capital stock of 150 international dollars, marginal returns are found to be relatively low at around 4 to 7 percent monthly. The authors provide some evidence that the high returns at low capital stocks reflect high risks. At the same time, most MSE's appear to be severely capital constrained.en-USCC BY 3.0 IGOACCESS TO CAPITALACCOUNTSBANK POLICYBARRIER TO ENTRYBORROWING CAPACITYCAPACITY BUILDINGCAPITAL ACCUMULATIONCAPITAL ALLOCATIONSCAPITAL CONSTRAINTCAPITAL INVESTMENTSCAPITAL MARKETCAPITAL REQUIREMENTSCAPITAL STOCKCHECKSCOLLATERALCREDIT CONSTRAINTSCREDIT PROGRAMSCREDIT PROVIDERSCREDIT RATIONINGCURRENCYDECREASING RETURNSDEVELOPING COUNTRYDEVELOPMENT ECONOMICSDISTRIBUTION OF WEALTHECONOMIC CONSTRAINTSECONOMIC DEVELOPMENTECONOMIC GROWTHELASTICITYENTRY BARRIERSEQUIPMENTEXOGENOUS VARIABLESEXPENDITUREFACTOR RETURNSFINANCIAL SUPPORTFIRST YEARFIXED COSTSGDPGDP PER CAPITAGROWTH THEORYHOUSEHOLD WEALTHINCOME DISTRIBUTIONINCOME LEVELSINFORMAL CREDITINSTRUMENTINTEREST PAYMENTSINVENTORYINVESTINGINVESTMENT BEHAVIORLABOR MARKETSLEVEL OF CAPITALLIQUIDITYLIQUIDITY CONSTRAINTSMACROECONOMICSMARGINAL RATE OF RETURNMARGINAL RETURN TO CAPITALMARKET CONSTRAINTSMARKET IMPERFECTIONSMICRO DATAMICRO-CREDITMICROENTERPRISESMONEY LENDERSPOLITICAL ECONOMYPORTFOLIOSPROFITABILITYPURCHASING POWERRATES OF RETURNSRETURNSRISK AVERSERISK AVERSIONSTATIC ANALYSISTAXTOTAL CAPITAL STOCKTRADE SECTORTRADERTRADINGTRUST FUNDUNIT OF CAPITALVALUE ADDEDWEALTHWorking PaperWorld Bank10.1596/27365