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The development of the small and medium enterprise sector is deemed crucial for economic growth and poverty alleviation. Such firms are often though to be at a disadvantage when compared with larger enterprises, but the reverse can apply, for example in the more flexible approach of the smaller firm. This paper draws on a private sector survey in 80 countries examining whether business obstacles are related to firm size. It finds a bias against small firms, which experience significantly greater problems than large firms with financing, taxes and regulations, inflation, corruption and street crime. These problems should be the prime targets of policies aimed at reducing inequity.
"The authors examine whether financial development boosts the growth of small firms more than large firms and hence provides information on the mechanisms through which financial development fosters aggregate economic growth. They define an industry's technological firm size as the firm size implied by industrial specific production technologies, including capital intensities and scale economies. Using cross-industry, cross-country data, the results indicate that financial development exerts a disproportionately large effect on the growth of industries that are technologically more dependent on small firms. This suggests that financial development accelerates economic growth by removing growth constraints on small firms and also implies that financial development has sectoral as well as aggregate growth ramifications. This paper--a product of the Finance Group, Development Research Group--is part of a larger effort in the group to understand the growth finance link"--World Bank web site.
Economic and social progress requires a diverse ecosystem of firms that play complementary roles. Making It Big: Why Developing Countries Need More Large Firms constitutes one of the most up-to-date assessments of how large firms are created in low- and middle-income countries and their role in development. It argues that large firms advance a range of development objectives in ways that other firms do not: large firms are more likely to innovate, export, and offer training and are more likely to adopt international standards of quality, among other contributions. Their particularities are closely associated with productivity advantages and translate into improved outcomes not only for their owners but also for their workers and for smaller enterprises in their value chains. The challenge for economic development, however, is that production does not reach economic scale in low- and middle-income countries. Why are large firms scarcer in developing countries? Drawing on a rare set of data from public and private sources, as well as proprietary data from the International Finance Corporation and case studies, this book shows that large firms are often born large—or with the attributes of largeness. In other words, what is distinct about them is often in place from day one of their operations. To fill the “missing top†? of the firm-size distribution with additional large firms, governments should support the creation of such firms by opening markets to greater competition. In low-income countries, this objective can be achieved through simple policy reorientation, such as breaking oligopolies, removing unnecessary restrictions to international trade and investment, and establishing strong rules to prevent the abuse of market power. Governments should also strive to ensure that private actors have the skills, technology, intelligence, infrastructure, and finance they need to create large ventures. Additionally, they should actively work to spread the benefits from production at scale across the largest possible number of market participants. This book seeks to bring frontier thinking and evidence on the role and origins of large firms to a wide range of readers, including academics, development practitioners and policy makers.
This paper examines the variation in life cycle growth across the universe of Mexican firms. We establish two stylized facts to motivate our analysis: first, we show that firm size matters for development by illustrating a close correlation with state-level per capita incomes. Second, we show that few firms grow as much as their U.S. peers while the majority stagnates at less than twice their initial size. To gain insights into the distinguishing characteristics of the two groups, we then econometrically decompose life cycle growth across firms. We find that firms that have financial access and multiple establishments and that are formal, part of diversified industries and located in population centers can grow at sizeable rates.
The book begins by reviewing the connection between firm size, innovation and market structure from a theoretical and an empirical point of view, with emphasis on the 'complexity' that defines this relationship. It then goes on to build an evolutionary model which explores different Schumpeterian propositions regarding the positive and negative feedback between firm size and innovation as well as the role of idiosyncratic random events on industry market structure. The concluding chapter uses 100 years in the history of the US automobile industry to explore the relationship between market share instability and stock price volatility and the degree to which this relationship is connected to industry specific factors. This innovative new book will prove invaluable to researchers, lecturers and scholars of industrial organisation, technology and market structure.
What role does the business environment play in promoting and restraining firm growth? Recent literature points to a number of factors as obstacles to growth. Inefficient functioning of financial markets, inadequate security and enforcement of property rights, poor provision of infrastructure, inefficient regulation and taxation, and broader governance features such as corruption and macroeconomic stability are discussed without any comparative evidence on their ordering. In this paper, the authors use firm level survey data to present evidence on the relative importance of different features of the business environment. They find that although firms report many obstacles to growth, not all the obstacles are equally constraining. Some affect firm growth only indirectly through their influence on other obstacles, or not at all. Using Directed Acyclic Graph methodology as well as regressions, the authors find that only obstacles related to finance, crime, and political instability directly affect the growth rate of firms. Robustness tests further show that the finance result is the most robust of the three. These results have important policy implications for the priority of reform efforts. They show that maintaining political stability, keeping crime under control, and undertaking financial sector reforms to relax financing constraints are likely to be the most effective routes to promote firm growth.
As emphasized by Hausmann, Rodrik and Velasco, the policy challenge of boosting growth requires prioritization and identifying what are the most binding constraints. This paper draws on firm-level data from the World Bank Enterprise Survey, which suggests that the obstacles for the functioning of firms is related to firm size. Recognizing the potential endogeneity and simultaneity between firms' constraints and firm size, we implement an Ordered-Probit model with a potential categorical endogenous regressor to estimate, for the case of Bolivia, the conditional probability of facing obstacles given the firm size category, while controlling for other factors. The results confirm the importance of allowing for the roles of firm size in identifying constraints and suggest priorities for policies to remove constraints to economic performance.
Research into firm growth has been accumulating at a terrific pace, and Alex Coad s survey of this multifaceted field provides a detailed, comprehensive overview of the latest developments. Much progress has been made in empirical research into firm growth in recent decades due to factors such as the availability of detailed longitudinal datasets, more powerful computers and new econometric techniques. This book provides an up-to-date catalogue of empirical work, as well as a coherent theoretical structure within which these new results can be interpreted and understood. It brings together a large body of recent research on firm growth from a multidisciplinary perspective, providing an up-to-date synthesis of stylized facts and empirical regularities. Numerous empirical findings and theories of firm growth are also surveyed and compared in order to evaluate their validity. Drawing on a vast and diverse body of research, this book will prove invaluable to students, academics, policy makers and practitioners with a need to keep abreast of studies in industrial organization, firm growth and management.
The uncertainty and volatility of modern commercial environments have shifted the foundations of business success and survival. Key factors that affect firm performance and determine sustainability now include knowledge creation, knowledge management, uncertainty management, organizational intelligence, and supply chain administration. This book proposes an analytical approach to identifying and enhancing these critical factors and describes how firms can exploit their strengths and compensate for their disadvantages. Sustaining business success requires competitive strategies that are rational and analytical. Firms that know their goals have an advantage over their rivals; those that can innovate and incorporate the knowledge they develop will prosper, even in the most competitive situations. Managers and business practitioners can learn from this book how to identify the key factors that make their firms effective and successful, and how to ensure they remain sustainable over time.