Executive summary: Firm dynamics are critical for economic growth in developing countries. Small, informal, and stagnant firms characterize poor countries, while market pressures ensure firm growth or exit in rich countries. Increasing market size and exposure to global markets can incentivize developing country firms to adopt better technologies and management practices.
Key points:
Firms in developing countries are smaller, more informal, and stagnant compared to rich countries. Firm growth seems necessary for development.
Small market size and information friction limit firm growth by constraining demand and incentives to improve productivity. Better infrastructure and communication technology can help.
Importing management practices and technologies from abroad can directly boost productivity. Interacting with global markets also facilitates learning.
Industrial policy should focus on overcoming barriers to firm growth rather than entry, especially by expanding market access and encouraging technology adoption.
Firm dynamics provide a useful lens for conceiving of growth interventions in developing countries. Creative destruction through firm growth and exit seems critical.
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Executive summary: Firm dynamics are critical for economic growth in developing countries. Small, informal, and stagnant firms characterize poor countries, while market pressures ensure firm growth or exit in rich countries. Increasing market size and exposure to global markets can incentivize developing country firms to adopt better technologies and management practices.
Key points:
Firms in developing countries are smaller, more informal, and stagnant compared to rich countries. Firm growth seems necessary for development.
Small market size and information friction limit firm growth by constraining demand and incentives to improve productivity. Better infrastructure and communication technology can help.
Importing management practices and technologies from abroad can directly boost productivity. Interacting with global markets also facilitates learning.
Industrial policy should focus on overcoming barriers to firm growth rather than entry, especially by expanding market access and encouraging technology adoption.
Firm dynamics provide a useful lens for conceiving of growth interventions in developing countries. Creative destruction through firm growth and exit seems critical.
This comment was auto-generated by the EA Forum Team. Feel free to point out issues with this summary by replying to the comment, and contact us if you have feedback.