The international evidence on discouraged small businesses

We use a unique firm-level survey database compiled by the World Bank to examine the drivers of discouraged small businesses in various developing economies around the world. We confirm that older and larger firms are less likely to be discouraged and that the level of competition and the relationships of the firms with banks have a significant impact on the probability of a firm in being discouraged. Further analysis suggests that the drivers of borrower discouragement might work differently for firms operating in relatively developed versus underdeveloped economies.

► We examine the drivers of discouraged small businesses internationally. ► We find that older and larger firms are less likely to be discouraged. ► Competition and relationships of firms with banks impact borrower discouragement. ► Discouragement is driven by distinct factors between more and less developed countries. ► Borrower discouragement is not an efficient self-screening mechanism overall.