Institutional constraints and SME growth in post‐communist Albania

This paper aims to investigate business growth in post‐communist Albania using an institutional perspective.

The paper takes an institutional perspective, which emphasises the role of institutional change in enabling/constraining business growth whilst allowing for entrepreneurial objectives and motivations to be taken into account. The analysis is based on firm‐level data collected through a survey questionnaire in April‐July 2004. The paper uses principal components analysis and a regression model to explain the factors that determine the pace of business growth of small firms.

The analysis offers important insights into the nature of entrepreneurship in a post‐communist setting. The age of the firm, the age, education, qualifications and work orientation of the entrepreneur, insufficient information and corruption, explain the differential growth of firms. Older entrepreneurs grow faster suggesting unfulfilled aspirations during communism as well as their access to wider professional, social and possibly also political connections. The positive effect of corruption on business growth suggests that an ability to cope with a corrupt environment has been a necessary entrepreneurial skill during a period of chaotic change in social and formal institutions that has characterized transition in Albania.

This research can be of special interest to studies of entrepreneurship in institutional transformation contexts, and it contributes especially to the accumulation of knowledge on transition economies by looking at the little researched case of post communist Albania.