What determines the performance of small enterprises in developing countries? Evidence from the handloom industry in Bangladesh

Abstract

Family-based traditional microenterprises are abundant in developing countries, and in many cases they are a major source of income and employment for both urban and rural poor. With a few exceptions, however, most of these family-based traditional microenterprises in the rural areas of developing countries seldom grow in terms of enterprises’ size and product quality. Thus, they tend to perform poorly relative to their growth potentials. The development of these family-based microenterprises would be instrumental to employment generation, poverty alleviation and sustainable economic growth in developing countries. Using primary data collected from the traditional handloom industry in Bangladesh, this paper inquires into the development process of family-based traditional microenterprises in developing countries. The paper empirically demonstrates that entrepreneurs’ general human capital acquired by formal education is critically important for the introduction of new and high value-added fashionable products, and, thus, performance of the enterprise.