Making It Big: Why Developing Countries Need More Large Firms
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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 Making It Big: 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 Making It Big international standards of quality, among other contributions. Their particularities are closely associated with productivity advantages and translate into improved outcomes Why Developing Countries not only for their owners but also for their workers and for smaller enterprises in their Why Developing Countries Need More Large Firms Why Developing Countries Need More Large value chains. The challenge for economic development, however, is that production Need More Large Firms 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. Tran Ragoussis, Keller, Ciani, Hyland, Karalashvili, ISBN 978-1-4648-1557-7 Andrea Ciani Marie Caitriona Hyland Nona Karalashvili Jennifer L. Keller Alexandros Ragoussis Trang Thu Tran SKU 211557 Making It Big Making It Big Why Developing Countries Need More Large Firms Andrea Ciani, Marie Caitriona Hyland, Nona Karalashvili, Jennifer L. Keller, Alexandros Ragoussis, and Trang Thu Tran © 2020 The World Bank Group 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 23 22 21 20 This work is a product of the staff of The World Bank Group with external contributions. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (Interna- tional Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Diretors or Executive Directors of the respective institutions of The World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. 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If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; e-mail: [email protected]. ISBN (paper): 978-1-4648-1557-7 ISBN (electronic): 978-1-4648-1558-4 DOI: 10.1596/978-1-4648-1557-7 Interior and cover design and cover image: Sergio Andres Moreno Tellez The Library of Congress Control Number: 2020943028 Contents Foreword ................................................................................................................... xi Acknowledgments .................................................................................................xv Executive Summary .............................................................................................xvii 12 Empirical Highlights .........................................................................................xxi Abbreviations .......................................................................................................xxiii Introduction ....................................................................................................1 Firms do not all serve the same purpose ..................................................1 How large is large? ........................................................................................2 Note ...................................................................................................................6 References .......................................................................................................6 1. Large firms make distinct contributions to development ....................9 Firm size is associated with productivity ................................................10 Size is a proxy for a package of characteristics and strategies ....... 16 Scale is associated with different returns to workers ........................ 24 Macroeconomic outcomes are influenced by large-firm activity ..... 31 Notes .............................................................................................................. 38 References .................................................................................................... 39 2. The “missing top” ...................................................................................47 Lower-income countries tend to have smaller firms .......................... 48 The gap is in the larger among large firms .......................................... 49 Is there a “missing top”? ............................................................................55 Notes .............................................................................................................. 58 References ....................................................................................................59 3. Large-firm creation: Origins and growth paths ..................................63 What