Evidence paper: Firm capabilities and economic growth

Abstract

The IGC Firm Capabilities Research Programme pulls economists with a common interest in firm capabilities together to focus on three core questions: (i) what are the key proximate determinants of firm productivity? (ii) Where does the productive capacity of firms originate? (iii) What are the barriers that prevent resources from moving from unproductive firms and sectors to areas of higher productivity? In addition to the focus on larger firms within the manufacturing and service sector, small firms (and farms) are also examined to reflect the fact that the majority of citizens in developing countries are not employed by large firms.

This evidence paper on firm capabilities is structured as follows. Section 2 discusses available data sets on firms in developing countries. This serves to emphasize how little we know about this sector and in this section ideas are presented on how to expand and improve our evidence base in this area. Section 3 presents stylised facts about firms in developing countries. Section 4 therefore examines the determinants of low labour productivity. It not only looks at what factors are associated with low labour productivity but also asks where differences in productive capacity across firms come from. This, in turn, greatly constrains our ability to design effective policies to encourage industrial development. Section 5 takes on the broader question of resource allocation and examine what prevents resources to move from unproductive sectors and firms to more productive areas.

Citation

Bloom, N.; Fischer, G.; Rasul, I.; Rodriguez-Clare, A.; Suri, T.; Udry, C.; Verhoogen, E.; Woodruff, C.; Zane, G. Evidence paper: Firm capabilities and economic growth. International Growth Centre, UK (2014) 54 pp.

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