Regional Financial Development and Micro and Small Enterprises in Peru

Empirical studies suggest that credit constraintsprevent the development of Micro and Small Enterprises (MSEs). This studycontributes to the analysis by exploring whether higher regional financialdevelopment affects the creation and growth of MSEs in Peru. Based on fourcross-sectional databases, mainly the 2018 National Household Survey on LivingConditions and Poverty, this paper finds that there is a positive impact onentrepreneur profits; however, the effect is negative on the likelihood ofrunning a business. Interactions between informality and financial frictionsmay explain this result. Informal financing emerges as an alternative in thiscontext. This study addresses endogeneity issues by using the number ofcommercial bank branches per 1,000 inhabitants in 1995 as an instrument of thedegree of regional financial development in 2018.

Palabras clave: Financial Development, Micro and Small Enterprises, Informal Finance,Instrumental Variables
Clasificación JEL: G20, O16, R11