FINANCING THE GERMAN MITTELSTAND

This paper describes how the German Mittelstand, or small-and medium-s ized enterprises, are financed in Germany. The role of the German Mitt elstand, both in a static and in a dynamic framework, is described and contrasted with that of the same size group in other leading industri alised countries. We find that in general, the Mittelstand has played a mmore important role in Germany than in other industrialised nations , such as the United States or the United Kingdom. The traditional suc cess of the German Mittelstand is partly attributable to a system of f inance that is richly layered by complementary institutions designed t o meet the financial needs of both large and smaller enterprises. Howe ver, we find evidence that even under the German system of finance liq uidity constraints exist and are greater for smaller firms. The German system of finance moreover seems particularly deficient in the channe ling of funds to new firm startups in the newer industries.