Competition among manufacturers in developing countries is remarkably vigorous. Nonetheless, markets are imperfect, so the general trend toward trade liberalization has yielded benefits beyond the traditional gains from specialization.Manufacturing firms in developing countries have traditionally been relatively protected. They have also been subject to heavy regulation, much of it biased in favor of large enterprises. Accordingly, it is often argued that manufacturers in these countries perform poorly in several respects:- Markets tolerate inefficient firms, so cross-firm productivity dispersion is high.- Small groups of entrenched oligopolists exploit monopoly power in product markets. - Many small firms are unable or unwilling to grow, so important economies of scale go unexploited.Tybout assesses each of these conjectures, drawing on plant - and firm - level studies of manufacturers in developing countries. He finds systematic support for none of them. Turnover is substantial, exploited scale economies are modest, and convincing demonstrations of monopoly rents are generally lacking.Overprotection and overregulation are probably less a problem in developing countries than are uncertainty about policies and demand, poor rule of law, and corruption.Tybout does find some evidence that protection increases firms' price-cost margins and reduces average efficiency levels at the margin.And although the econometric evidence on technology diffusion in developing countries is limited, it does suggest that protecting learning industries is unlikely to foster productivity growth.All of which suggests that the general trend toward trade liberalization has yielded greater benefits than the traditional gains from trade.This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to link firm-level performance with commerical policy.

Technology and globalization are threatening manufacturing’s traditional ability to deliver both productivity and jobs at a large scale for unskilled workers. Concerns about widening inequality within and across countries are raising questions about whether interventions are needed and how effective they could be. Trouble in the Making? The Future of Manufacturing-Led Development addresses three questions: - How has the global manufacturing landscape changed and why does this matter for development opportunities? - How are emerging trends in technology and globalization likely to shape the feasibility and desirability of manufacturing-led development in the future? - If low wages are going to be less important in defining competitiveness, how can less industrialized countries make the most of new opportunities that shifting technologies and globalization patterns may bring? The book examines the impacts of new technologies (i.e., the Internet of Things, 3-D printing, and advanced robotics), rising international competition, and increased servicification on manufacturing productivity and employment. The aim is to inform policy choices for countries currently producing and for those seeking to enter new manufacturing markets. Increased polarization is a risk, but the book analyzes ways to go beyond focusing on potential disruptions to position workers, firms, and locations for new opportunities. www.worldbank.org/futureofmanufacturing

This dissertation provides a theoretical and empirical investigation of the role of two under-explored factors in the performance of industrial firms in developing countries - one external to the firm in source, electricity service quality, and one internal to the firm, management practices. The first chapter lays out a theoretical framework that illustrates how poor electricity service quality can have particularly negative impacts on industrial productivity, including unexpected consequences like increased market concentration and oligopolistic behavior. The key idea here is that, because firms can produce their own electricity using private generators when the public grid is down, unreliable central power systems translate the substantial economies of scale in where relatively small producers are otherwise cost-competitive. As a result, larger firms can more easily dominate markets, potentially resulting in lower output and slower productivity growth. The second chapter turns to state- and firm-level data from India over the period 1979-2005, providing econometric estimates of the impacts of increases in electricity generation capacity on aggregate manufacturing output, employment and productivity, as well as suggestive evidence on the relationship between electricity shortages and the firm size distribution. The headline result is that a 1% increase in public sector electricity generation capacity is associated with a 0.13-0.26% increase in manufacturing output, about half of which comes from increased employment in the manufacturing sector and the remainder from increased productivity. These results put the present value of investments in public sector electricity generation capacity at roughly 2-4 times their cost. The third chapter turns to management practices, a similarly under-studied determinant of firm performance that lies primarily internal to the firm. Using data from an experiment on the randomized provision of management consulting services to textile manufacturing firms in India, this chapter provides a detailed methodology for measuring management practices on the shop-floor as well as econometric estimates of the impact of improved management practices on firm-level productivity, quality and profitability. The econometric results confirm the commonly held suspicion among businesspeople that the quality of management matters for firm performance; the improvements in management practices induced by the treatment increased the average plant's productivity by about 15% and its profitability by about 24% per year. The chapter also offers some suggestive evidence on why firms do not necessarily rapidly adopt modern management practices despite their benefits for productivity, focusing on the notion of management as a technology which diffuses slowly via knowledge transfer. Together, these three chapters provide a complex picture of the performance of firms in developing countries. External obstacles like poor electricity service quality broadly hinder economic growth and require improvements in state capacity, regulatory quality and the market environment to overcome. However, firms nonetheless can potentially make large gains in productivity and profitability from improving their internal systems and processes, including management practices. This story is consistent with the evidence of great competitive difficulties felt by many Indian firms struggling to compete with Chinese imports on the one hand, and the rise of great Indian multinationals like Tata and Reliance from humble beginnings as family businesses on the other.

Performance of Manufacturing Firms in Africa: An Empirical Analysis sheds light on the characteristics of formal and informal manufacturing firms in Africa by comparing these firms with firms in other regions. Drawing on two data sources, the authors find that there is a very low share of manufacturing in GDP in Africa and in African exports. Most African manufacturing firms are informal, perhaps because the enforcement of registration and licensing regulations is not strict. These firms are also smaller than firms in other regions and few export. Labor productivity is low in Africa relative to other regions, but this may be because of the more challenging environment—with the lack of physical infrastructure, the heavy burden of business regulation, and other issues. However, after accounting for these differences, the authors find that firms in Sub-Saharan Africa appear more, not less, productive than firms elsewhere. This analysis suggests that improving the business environment might allow firms to enhance their performance. However, given the pervasive distortions in the business environment and the limited resources at the disposal of most African countries, Africa cannot and should not wait until the business environment becomes healthier before growing a more viable manufacturing sector. Performance of Manufacturing Firms in Africa: An Empirical Analysis shows that binding constraints vary by country, by sector, and by firm size. Therefore, countries should identify the constraints in the most promising sectors and adopt policies designed specifically to remove these constraints. The evidence in this book overwhelmingly dispels the false notion of Africa’s inability to compete globally in manufacturing goods. This book will be of interest to economists, policy makers, and government officials working to improve manufacturing firm performance in Africa.

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.

Manufacturing-led development has provided the traditional model for creating jobs and prosperity. But in the past three decades the conventional pattern of structural transformation has changed, with the services sector growing faster than the manufacturing sector. This raises critical questions about the ability of developing economies to close productivity gaps with advanced economies and to create good jobs for more people. At Your Service? The Promise of Services-Led Development (www.worldbank.org/services-led-development) assesses the scope of a services-driven development model and policy directions that can maximize the model’s potential.