Academic journal article Journal of Economic and Social Studies

Determination of Firm Growth: A Study of Rural SMEs in Bosnia-Herzegovina(i)

Academic journal article Journal of Economic and Social Studies

Determination of Firm Growth: A Study of Rural SMEs in Bosnia-Herzegovina(i)

Article excerpt

Introduction

BiH as a developing and transition country faces severe obstacles in economic development, especially in rural areas, where majority (above 60%) of the population is located (Ministry of Foreign Trade and Entrepreneurship, 2008). Without proper and sustainable rural entrepreneurship development, there are further difficulties for strengthening economic development. This paper investigated the factors that hamper larger involvement of population in rural businesses in the framework of the model of determinants of growth of firms in rural areas. The focus is on micro and small businesses, run by rural entrepreneurs.

Entrepreneurship has an important overall role in the economic and rural development, building stronger than ever relations in rural areas. Entrepreneurship, as a dynamic force for growth, employment creation, and life quality improvement (Petrin, 1994), has been considered a key element in rural development and sustainable economic development. The more entrepreneurial region is, the more it outperforms neighbouring economic regions. Acknowledging the central role entrepreneurship has in economic rural development and properly developing conducive entrepreneurship environment (Sherief, 2005), leads to the rural entrepreneurship network that creates a positive business climate and behaviour, decreasing significantly important rural poverty and generates employment, particularly for youth. For the successful and productive environment, it is highly important to understand the factors that influence rural entrepreneurship, which include productive interventions by the state (Petrin, 1994), diversification of products, entrepreneurship promotion and marketing, knowledge transfer and sharing, supply chains and a net of cooperatives and large companies (Rongsen, 1998).

Although rural areas in Bosnia and Herzegovina are characterized by small arable parcels per capita, of less than 2 ha of arable land per farm (Volk, 2008), consisting of approximately 250.000 firms, presenting twenty five per cent of the businesses (Volk, 2008), agriculture is very important and persistent way of rural entrepreneurship. Still, large defragmentation and disintegration of small producers, has kept producers mostly related to subsistence agriculture, leading to diminished productivity and inefficiency. This highlights the need to identify the most prominent obstacles to rural entrepreneurship and draft a precise, comprehensive and successful rural entrepreneurship strategy to create sustainable rural development, to generate employment and spur innovation.

Paper is further organized in five main sections. The next section presents review of the theoretical and empirical literature on factors determining growth of rural businesses. Third section describes the methodology used in the analysis of factors influencing growth of rural businesses in BiH, where the empirical model and data used in the analysis are explained. The fourth section presents results of the empirical estimation of the models. Finally, section five concludes and provides a list of policy recommendations for improving entrepreneurial activities in rural areas as of BiH.

Literature Review

Growing empirical evidence in the literature on rural entrepreneurship (Volk, 2008), supports the hypothesis that there is a positive correlation between governance, rural entrepreneurship and rural development, where goal oriented policy, transparent support and efficient law framework play an important role.

Literature identified the main factors affecting growth of rural businesses. These factors can be broadly divided into "internal" factors (such as characteristics of entrepreneurs, characteristics of the business) and "external" factors (such as population trends, availability of natural resources, government support, characteristics of the labour and good market, quality of the supply chain, and availability of finances).

Risk taker, innovator, motivated, opportunity taker, inspired, owner, are all features of the entrepreneur (Martin and Osberg, 2007). …

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