Size and Age of Establishments: Evidence from Developing Countries
George Washington University - School of Business
World Bank - Financial and Private Sector Development; World Bank
University of Maryland - Robert H. Smith School of Business
December 1, 2013
World Bank Policy Research Working Paper No. 6718
Survey data from 120 developing countries are used to examine the relation between establishment size and age in the formal sector. Existing research suggests that manufacturing establishments in developing countries do not grow over time, most likely because of market imperfections and regulations. To the contrary, this paper finds that the average plant in developing countries that is more than 40 years old employs almost five times as many workers as the average plant that is five years old or younger. The analysis finds consistent evidence when it looks within a large country, India, based on detailed manufacturing census data over 23 years. It also finds that differences in financial development across Indian states, while substantial, have a minor effect on firm growth, consistent with inefficiency of state-owned financial systems. These results hold controlling for differences in labor regulations across states, capital intensity, labor regulations, and firms born before and after the major reforms.
Number of Pages in PDF File: 77
Keywords: Microfinance, Banks & Banking Reform, Scientific Research & Science Parks, Science Education, Labor Markets
Date posted: December 10, 2013
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