investment. Small and medium-sized enterprises (SMEs) are the backbone of any economy.

They contribute significantly to job creation, income generation, and economic growth. In

Panama, SMEs play a similar role. The purpose of this paper is twofold, to analyze the

relationship between the business environment and business expectations among SMEs in

Panama; and to test the hypothesis that women leaders are more likely to have lower business

expectations. Using data from the World Bank, we implement a Tobit Regression Model

and find that women-led firms are more likely to have negative expectations, relative to their

counterparts.

columna vertebral de cualquier economía. Contribuyen significativamente a la creación de

empleo, la generación de ingresos y el crecimiento económico. En Panamá, las PYMEs

desempeñan un papel similar. El objetivo del estudio a continuación tiene dos propósitos.

Primero, analizamos la relación entre el ambiente y las expectativas empresariales en las

PYMEs en Panamá y desde esta perspectiva, también examinamos la validez de la hipótesis

que establece que las mujeres, en el ámbito empresarial, tienden a expresar expectativas

negativas en comparación con los hombres. Utilizando datos del Banco Mundial,

implementamos un modelo de regresión de Tobit para evaluar la validez de esta hipótesis.

Los resultados confirman que las empresas dirigidas por mujeres tienen más probabilidades

de tener expectativas negativas, en comparación con sus contrapartes.

investment. Panama has maintained strong and consistent GDP growth over the past decade,

primarily driven by its dynamic service sector, particularly finance, commerce, and logistics.

As it was the case elsewhere, the COVID-19 pandemic had a negative impact, and Panama's

economy has been on the road to recovery since then. Panama's strategic location as a global

trade hub through the Panama Canal and the Coln Free Trade Zone has allowed large, as

well as small and medium-sized enterprises (and the focus of this paper), to have access to

international markets, and export opportunities.

Small and medium-sized enterprises (SMEs) are the backbone of any economy. They

contribute significantly to job creation, income generation, and economic growth. In

in Panama are defined as firms with fewer than 100 employees and an annual turnover of

less than $10 million. They represent over 90% of all businesses in the country and account

for 60% of total employment. Most SMEs are micro-enterprises, with fewer than ten

employees. They operate in various sectors, including retail, manufacturing, agriculture,

tourism, and services (Vargas, 2021).

Using data from the World Bank, we implement a Tobit Regression Model to analyze the

relationship between the business environment and business expectations among SMEs in

Panama. We also try to test for the narrative that women leaders (female managers/owners)

are more likely to have lower business expectations than their counterparts (Haus et al.,

While often described as a tool for poverty reduction and employment creation (Easterly,

More recently, the focus on SMEs has shifted from a catalyst of domestic development to

global expansion opportunities and potential rival to established international businesses

(HSBC, 2016; and Child et al., 2022). Although it might sound counter intuitive, as Jones

(1999) explains, the internationalization process of SMEs does not necessarily follow a

series of steps. While the exports avenue seems like the logical path, there are significant

speedbumps along that path such as foreign trade regulations, and competition with SMEs

While the internationalization avenue might present itself as the next logical step in countries

constraints, adverse regulatory environment, political instability, ineffective infrastructure,

as well as a heavy regulatory burden (Subhan et al., 2014). And now we must add responding

and recovering from a global pandemic to the list of challenges. As Eniola and Ineba Decster

(2022) explain, Covid-19 will continue to have a devastating and demoralizing impact on

SMEs, particularly on their workforce. Thus, as Nuwagaba (2015) argues, any strategic

development plan should focus on investing on SMEs because, among other things, they

In terms of business expectations, SME managers are generally considered to have more

positive business expectations than larger firms due to their flexibility, innovation, and

American Express and Oxford Economics (2019) found that small business owners in the

United States are generally optimistic about their business prospects, with 67% of

respondents reporting that they expect their revenues to increase in the coming years.

Overall, while there may be variations among different studies and regions, SMEs’ managers

generally tend to have higher positive business expectations relative to their counterparts in

larger firms. However, while SMEs’ managers tend to be more optimistic, as Exley and

Neilsen (2024) explain, a gender gap in confidence and therefore expectations exist. For

example, following Blau and Kahn (2017), women tend to be underrepresented in fields that

are perceived to be male dominated. Hernandez-Arenaz and Iriberri (2019) have

documented a gender gap in the willingness to negotiate, while Croson and Gneezy (2009)

According to a 2023 report from the International Monetary Fund (IMF) Panama’s

macroeconomic performance has been remarkably strong, mainly because of a strong capital

accumulation leading to even stronger economic growth. As Figure 1 below shows, Panama

has been the fastest growing economy in the region for the past two decades.

Source: IMF (2023)

2017, as shown in Table 1.

Source: IMF (2023) * Poverty headcount ratio at $5.50 a day. **Poverty headcount ratio at

$1.90 a day

Following a 2022 report from the International Labor Organization (ILO), Panama’s

economy has been one of the most dynamic in the world. Panama’s economy annual average

growth was 7%, between 2004 and 2008, in contrast to the 3.3% for Latin America.

Nevertheless, the pandemic put a dent on growth and with that, poverty and inequality began

to expand. Panama now has one of the highest inequality rates among Latin American

unemployment rate reached 18.1% in 2020, a three-fold increase. Entrepreneurial activities,

already expanding before the arrival of the pandemic, continue growing. Here too, the

number of women joining the entrepreneurial class has been significant. Since 2011, the

number of women working on their own has increased by 25%, with the number women

own businesses increasing by 21%.

4. SMEs in Panama

According to the World Bank (2020), Panama ranks 86th out of 190 economies in the ease

of doing business, with access to finance as one significant challenge for SMEs in Panama,

forcing most to rely on informal sources of finance to start or expand their businesses.

Following the World Bank (2020), only 33% of SMEs in Panama have access to formal

financing. Formal sources of finance, such as banks, are often reluctant to lend to SMEs due

to their perceived high risk.

elsewhere, has both strengths and weaknesses. On the one hand, Panama's strategic location,

stable political climate, and business-friendly regulatory framework make the country fertile

ground for entrepreneurs looking to start or expand their businesses. On the other hand,

SMEs in Panama face challenges such as limited access to financing, high operational costs,

As Palma and García (2018) explain, while the rate of new entrants is relatively high in

Panama, the sustainability of entrants is low. In other words, many new SMEs are created

but only about a third of those manage to survive. Despite the challenges, there are still

opportunities for SMEs in Panama, particularly in the tourism, logistics, and agriculture

sectors.

5. Gender Gaps and SMEs in Panama

Following Fang et al. (2022), women-led enterprises tend to flourish in countries with

welcoming business environments (e.g., rule of law, and gender equality), stronger

individualistic culture, and small firms. Nevertheless, women-led firms tend to have lower

levels of productivity and growth.

outshining men in terms of tertiary educational attainment, and Panama is not an exception.

Following ILO (2022), women entrepreneurs in Panama have higher levels of education

relative to their male counter parts. Nevertheless, they self-report lower levels of knowledge

and experience to start a business. For example, while 40% of the women have a college

education relative to 35% of men, 67% of women report having enough knowledge and

experience to start a business relative to 78% of men. Thus, the glass ceiling remains

entrenched with potential negative consequences in terms of business expectations and

economic expansion.

6. Data and Methodology

Using a proprietary dataset from the World Bank, we are trying to understand the drivers of

positive business expectations among SMEs and, all things equal, we are trying to validate

our hypothesis that women leaders (female managers/owners) are more likely to have lower

business expectations than their counterparts.

in the private sector via its Enterprise Analysis Unit. When deploying a survey, the World

Bank targets the population of all registered establishments with at least five employees. In

the case of Panama, the sample contains 300 establishments with interviews conducted

between May 24th and June 28th, 2021. The sample for Panama follows a stratified random

Manufacturing, and 25% in Retail. Approximately 35% of firms are run by women, with

women accounting for 45% of all full-time workers as well. Nearly 95% of the firms

remained open during the Covid-19 pandemic. However, only 14% of firms experienced an

increase in sales. Almost half of the firms created an online presence during the Covid-19

pandemic, with the same proportion of the firms moving operations online during the same

period. Closely to 60% of the firms experienced an increase in production costs. Finally,

85% of firms received no Government assistance.

The survey asks managers/owners, what is the probability that your business will be in a

better position in the next six months relative to your current position? This is our dependent

variable (Better). The observed range of this variable is censored and for that reason, we

implement a Tobit model.



positive, we only observe it as zero. This binary nature of the outcome variable is what makes

the Tobit model distinct from traditional linear regression. Following Olsen (1978), with γ

Table 2 shows the results of the TRM targeting Better as the dependent variable with the

above-mentioned controls. Table 2: Regression Results