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Size and age of establishments: evidence from developing countries

  • Ayyagari, Meghana
  • Demirguc-Kunt, Asli
  • Maksimovic, Vojislav

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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6718.

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Date of creation: 01 Dec 2013
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Handle: RePEc:wbk:wbrwps:6718
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  1. Lu�s M B Cabral & Jos� Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
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  3. Evans, David S, 1987. "The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 567-81, June.
  4. Aditya Bhattacharjea, 2006. "Labour Market Regulation and Industrial Performance in India--A Critical Review of the Empirical Evidence," Working papers 141, Centre for Development Economics, Delhi School of Economics.
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  9. Rajeev Dehejia & Adriana Lleras-Muney, 2007. "Financial Development and Pathways of Growth: State Branching and Deposit Insurance Laws in the United States, 1900–1940," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 239-272.
  10. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2005. "How well do institutional theories explain firms'perceptions of property rights?," Policy Research Working Paper Series 3709, The World Bank.
  11. Genevieve Boyreau-Debray & Shang-Jin Wei, 2005. "Pitfalls of a State-Dominated Financial System: The Case of China," NBER Working Papers 11214, National Bureau of Economic Research, Inc.
  12. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2008. "Formal versus informal finance : evidence from China," Policy Research Working Paper Series 4465, The World Bank.
  13. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers 1-87-5, Pennsylvania State - Department of Economics.
  14. Bruhn, Miriam, 2008. "License to sell : the effect of business registration reform on entrepreneurial activity in Mexico," Policy Research Working Paper Series 4538, The World Bank.
  15. Shawn A. Cole, 2007. "Financial Development, Bank Ownership, and Growth. Or, Does Quantity Imply Quality?," Harvard Business School Working Papers 09-002, Harvard Business School.
  16. Sean Dougherty & Verónica C. Frisancho Robles & Kala Krishna, 2011. "Employment Protection Legislation and Plant-Level Productivity in India," NBER Working Papers 17693, National Bureau of Economic Research, Inc.
  17. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2000. "The Role of Social Capital in Financial Development," CRSP working papers 511, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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  22. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
  23. Rafael La Porta & Florencio Lopez-deSilanes & Andrei Shleifer, 2000. "Government Ownership of Banks," Harvard Institute of Economic Research Working Papers 1890, Harvard - Institute of Economic Research.
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