A third of workers in low- and middle-income countries are self-employed, compared to fewer than a tenth in high-income countries (Gindling and Newhouse, 2014). In the poorest countries (those classified as low-income by the World Bank) half of workers are self-employed. Many of the selfemployed work in agriculture, but this alone does not explain the differences between rich and poor countries: thirty percent of non-agricultural workers in low- and middle-income countries are selfemployed.
Most of these businesses are small. In nine out of ten cases, the business has no employees besides the owner (Gindling and Newhouse, 2014). This review focuses on very small, or “micro” businesses, which I define loosely as those with no employees or fewer than five employees. Following the literature, I refer to these businesses as microenterprises and their owners as microentrepreneurs. While the term “entrepreneur” often connotes a highly ambitious, growth-oriented business owner, in the context of this review, the term is more neutral. Indeed, one of the key questions in the literature is what proportion of microentrepreneurs are self-employed out of necessity and would prefer working for someone else as a paid employee.
This article reviews the recent literature on microentrepreneurship in developing countries, with the scope restricted to the non-agricultural sector. Many studies I discuss use a sample of firms with varying sizes, but my aim is to focus on firms with fewer than five employees - and often no employees besides the business owner.[1] I focus mostly on impact evaluations that use policy interventions to better understand the inner workings of microenterprises or to identify ways of increasing their profitability and growth rates. Some of the main topics discussed are formalization, business training, access to credit, barriers to hiring, and the degree to which the poor become microentrepreneurs by necessity. A special emphasis throughout is gender and microentrepreneurship, or the differences in patterns for male and female-run microenterprises.
[1] For a complementary review, see Quinn and Woodruff (2019), who review the literature on randomized experiments used to understand entrepreneurship in developing countries.
