Competitiveness and New Technologies in Latin America OBSTACLES TO BUSINESS DEVELOPMENT AND THE SIZE OF FIRMS IN LATIN AMERICA

C Co om mp pe et ti it ti iv ve en ne es ss s a an nd d N Ne ew w T Te ec ch hn no ol lo og gi ie es s i in n L La at ti in n A Am me er ri ic ca a Abstract * Business development in Latin America faces great difficulties. Businessmen assign an alarming importance to the problem of lack of financing. Major outstanding problems also include excessive taxes and regulation, policy instability and, to a lesser extent, inflation and exchange rates. Latin American businessmen classify several of these problems as severe more often than businessmen in other world regions. The same occurs with obstacles such as crime and corruption, which could reflect a greater disposition on the part of Latin American businessmen to discuss their problems. Nonetheless, the severity with which they describe these problems in most cases is supported by objective indicators of these problems (the only exception being the excess of taxes and regulations). The severity of these problems is also consistent with the fact that large Latin American firms are too small in relation to world patterns, in terms of both the quantity of assets they control and the amount of employment they generate. Thus, possibilities for business development in the region are more limited than in other regions. An econometric analysis of the determinants of the size of large firms around the world confirms the importance of the lack of financing, which is consistent with businessmen's opinions. On the other hand, these econometric exercises do not support businessmen's concerns regarding excess taxes and regulations, policy instability or the quality of the macroeconomic environment. This does not imply that these variables do not have an effect on other variables of firms' performance, including on the size of medium and small firms. Instead, the econometric exercises find that deficiencies in infrastructure, in spite of not being frequently mentioned by businessmen as a grave problem, do appear to severely affect business development, at least for the region's large firms.