Constraints to small business development across the life cycle: Some evidence from peripheral areas in israel

This paper suggests that the constraints to small business development are likely to vary across the firm’s life cycle. In addition, small businesses operating in peripheral areas are likely to face growth constraints arising from their location. On the basis of survey evidence from 100 small (owner-managed) firms operating in both peripheral and central locations in Israel, the probability of encountering a constraint (capital, marketing or bureaucratic) is then estimated. This probability is estimated for two points in the firms’ development trajectory: the start-up stage and the stage of sustained operation. The results suggest that at the start-up stage the personal attributes of the entrepreneur serve to mitigate the odds of encountering a constraint while firm size increases the chances. At the operating stage, the personal characteristics of the owner and the form of economic activity are found to be influential. The conclusions point to the high opportunity costs associated with small firms in peripheral areas and to the role of firm size in mitigating the effects of finance constraints over the life cycle. The broad policy implications of these findings are outlined.