IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Manufacturing Firms In Developing Countries: How Well Do They Do, And Why?

  • James Tybout

    (Georgetown University)

The manufacturing sectors of less developed countries (LDCs) have traditionally been relatively protected. They have also been subject to heavy regulation, much of which is biased in favor of large enterprises. Accordingly, it is often argued that manufacturers in these countries perform poorly in several respects: (1) markets tolerate inefficient firms, so cross-firm productivity dispersion is high; (2) small groups of entrenched oligopolists exploit monopoly power in product markets; and (3) many small firms are unable or un-willing to grow, so important scale economies go unexploited. In this paper I assess each of these conjectures, drawing on plant and firm-level studies of LDC manufacturers. I find none to be systematically supported. Turnover is substantial, unexploited scale economies are modest, and convincing demonstrations of monopoly rents are generally lacking. Nonetheless I find some evidence that protection increases firms' price-cost margins and reduces average efficiency levels at the margin. Finally, al-though the econometric evidence on technology diffusion in LDCs is limited, it does sug-gest that protecting "learning" industries is unlikely to foster productivity growth. All of this suggests that the general trend toward trade liberalization has yielded larger benefits that the traditional gains from trade.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://128.118.178.162/eps/dev/papers/9805/9805004.ps.gz
Download Restriction: no

File URL: http://128.118.178.162/eps/dev/papers/9805/9805004.html
Download Restriction: no

File URL: http://128.118.178.162/eps/dev/papers/9805/9805004.pdf
Download Restriction: no

File URL: http://128.118.178.162/eps/dev/papers/9805/9805004.doc.gz
Download Restriction: no

Paper provided by EconWPA in its series Development and Comp Systems with number 9805004.

as
in new window

Length: 61 pages
Date of creation: 23 Jun 1998
Date of revision:
Handle: RePEc:wpa:wuwpdc:9805004
Note: Type of Document - Word 97; prepared on IBM PC; to print on HP; pages: 61 ; figures: included. This paper was partially funded by the World Bank's Economic Development Institute. I have benefited from discussions with Mark Dutz, Mark Gersovitz, Bernard Hoekman, Carl Liedholm, William Maloney, Desmond McCarthy, Howard Pack, Mark Roberts, Maurice Schiff, and William Steel. I am especially indebted to John Pencavel and several anonymous reviewers, who have improved this manuscript with many insightful suggestions.
Contact details of provider: Web page: http://128.118.178.162

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Brown, D.K. & Deardorff, A.V. & Stern, R.M., 1991. "A North American Free Trade Agreement: Analytical Issues and A Computational Assessment," Working Papers 289, Research Seminar in International Economics, University of Michigan.
  2. Robert C. Feenstra & James R. Markusen, 1992. "Accounting for Growth With New Inputs," NBER Working Papers 4114, National Bureau of Economic Research, Inc.
  3. Gauthier, Bernard & Gersovitz, Mark, 1997. "Revenue erosion through exemption and evasion in Cameroon, 1993," Journal of Public Economics, Elsevier, vol. 64(3), pages 407-424, June.
  4. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  5. Sofronis K. Clerides & Saul Lach & James R. Tybout, 1998. "Is Learning By Exporting Important? Micro-Dynamic Evidence From Colombia, Mexico, And Morocco," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 903-947, August.
  6. Foster, Andrew D & Rosenzweig, Mark R, 1995. "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1176-1209, December.
  7. Roberts, M.J. & Tybout, J.R., 1990. "Size Rationalization And Trade Exposure In Developing Countries," Papers 5-90-2, Pennsylvania State - Department of Economics.
  8. Banerji, Ranadev, 1978. "Average size of plants in manufacturing and capital intensity : A cross-country analysis by industry," Journal of Development Economics, Elsevier, vol. 5(2), pages 155-166, June.
  9. Westbrook, M Daniel & Tybout, James R, 1993. "Estimating Returns to Scale with Large, Imperfect Panels: An Application to Chilean Manufacturing Industries," World Bank Economic Review, World Bank Group, vol. 7(1), pages 85-112, January.
  10. Schmalensee, Richard., 1984. "Do markets differ much?," Working papers 1531-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  11. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
  12. Little, I M D, 1987. "Small Manufacturing Enterprises in Developing Countries," World Bank Economic Review, World Bank Group, vol. 1(2), pages 203-35, January.
  13. Feenstra, Robert C & Markusen, James R & Zeile, William, 1992. "Accounting for Growth with New Inputs: Theory and Evidence," American Economic Review, American Economic Association, vol. 82(2), pages 415-21, May.
  14. Page, John M, Jr, 1980. "Technical Efficiency and Economic Performance: Some Evidence from Ghana," Oxford Economic Papers, Oxford University Press, vol. 32(2), pages 319-39, July.
  15. Blomstrom, Magnus & Kokko, Ari, 1997. "How foreign investment affects host countries," Policy Research Working Paper Series 1745, The World Bank.
  16. Rivera-Batiz, Francisco L. & Rivera-Batiz, Luis A., 1990. "The effects of direct foreign investment in the presence of increasing returns due to specialization," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 287-307, November.
  17. Tan, Hong & Batra, Geeta, 1997. "Technology and Firm Size-Wage Differentials in Colombia, Mexico, and Taiwan (China)," World Bank Economic Review, World Bank Group, vol. 11(1), pages 59-83, January.
  18. Krishna, Pravin & Mitra, Devashish, 1998. "Trade liberalization, market discipline and productivity growth: new evidence from India," Journal of Development Economics, Elsevier, vol. 56(2), pages 447-462, August.
  19. Miyagiwa, K. & Ohno, Y., 1993. "Closing the Technology Gap Under Protection," Working Papers 93-09, University of Washington, Department of Economics.
  20. Tybout, James R, 1992. "Linking Trade and Productivity: New Research Directions," World Bank Economic Review, World Bank Group, vol. 6(2), pages 189-211, May.
  21. Gene M. Grossman (ed.), 1992. "Imperfect Competition and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570939, June.
  22. Aw, B. -Y. & Hwang, A. R., 1995. "Productivity and the export market: A firm-level analysis," Journal of Development Economics, Elsevier, vol. 47(2), pages 313-332, August.
  23. Levinsohn, J., 1991. "Testing the Imports-As-Market-Discipline Hypothesis," Working Papers 272, Research Seminar in International Economics, University of Michigan.
  24. Pursell, Garry, 1990. "Industrial Sickness, Primary and Secondary: The Effects of Exit Constraints on Industrial Performance," World Bank Economic Review, World Bank Group, vol. 4(1), pages 103-14, January.
  25. Brunetti, Aymo & Kisunko, Gregory & Weder, Beatrice, 1997. "Institutional obstacles to doing business : region-by-region results from a worldwide survey of the private sector," Policy Research Working Paper Series 1759, The World Bank.
  26. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter.
  27. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
  28. Tybout, James R, 1984. "Interest Control and Credit Allocation in Developing Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 474-87, November.
  29. Aitken, Brian & Harrison, Ann & DEC, 1994. "Do domestic firms benefit from foreign direct investment? Evidence from panel data," Policy Research Working Paper Series 1248, The World Bank.
  30. Stokey, Nancy L, 1988. "Learning by Doing and the Introduction of New Goods," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 701-17, August.
  31. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  32. Levy, Brian, 1990. "Transactions costs, the size of firms and industrial policy : Lessons from a comparative case study of the footwear industry in Korea and Taiwan," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 151-178, November.
  33. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  34. Vousden, Neil & Campbell, Neil, 1994. "The organizational cost of protection," Journal of International Economics, Elsevier, vol. 37(3-4), pages 219-238, November.
  35. Harrison, Ann, 1995. "Determinants and effects of direct foreign investment in Cote d'Ivoire, Morocco, and Venezuela," MPRA Paper 36594, University Library of Munich, Germany.
  36. Pitt, Mark M. & Lee, Lung-Fei, 1981. "The measurement and sources of technical inefficiency in the Indonesian weaving industry," Journal of Development Economics, Elsevier, vol. 9(1), pages 43-64, August.
  37. Dani Rodrik, 1988. "Imperfect Competition, Scale Economies, and Trade Policy in Developing Countries," NBER Chapters, in: Trade Policy Issues and Empirical Analysis, pages 109-144 National Bureau of Economic Research, Inc.
  38. Rutherford, Thomas F. & Rutstrom, E.E. & Tarr, David, 1993. "Morocco's free trade agreement with the European community : a quantitative assessment," Policy Research Working Paper Series 1173, The World Bank.
  39. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
  40. Tybout, James R., 1992. "Making noisy data sing : Estimating production technologies in developing countries," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 25-44.
  41. Handoussa, Heba & Nishimizu, Mieko & Page, John Jr., 1986. "Productivity change in Egyptian public sector industries after the opening, 1973-1979," Journal of Development Economics, Elsevier, vol. 20(1), pages 53-73.
  42. Tybout, James & de Melo, Jaime & Corbo, Vittorio, 1990. "The effects of trade reforms on scale and technical efficiency : new evidence from Chile," Policy Research Working Paper Series 481, The World Bank.
  43. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-84, August.
  44. Bigsten, A. & Collier, P. & Dercon, S., 2000. "Exports and Firm-Level Efficiency in African Manufacturing," Papers 2000-04, Ecole des Hautes Etudes Commerciales de Montreal-.
  45. Tybout, James R. & Westbrook, M. Daniel, 1995. "Trade liberalization and the dimensions of efficiency change in Mexican manufacturing industries," Journal of International Economics, Elsevier, vol. 39(1-2), pages 53-78, August.
  46. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
  47. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
  48. Stigler, George J, 1976. "The Xistence of X-Efficiency," American Economic Review, American Economic Association, vol. 66(1), pages 213-16, March.
  49. Tyler, William G & Lee, Lung-Fei, 1979. "On Estimating Stochastic Frontier Production Functions and Average Efficiency: An Empirical Analysis with Colombian Micro Data," The Review of Economics and Statistics, MIT Press, vol. 61(3), pages 436-38, August.
  50. Basant, Rakesh & Fikkert, Brian, 1996. "The Effects of R&D, Foreign Technology Purchase, and Domestic and International Spillovers on Productivity in Indian Firms," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 187-99, May.
  51. T. A. Bhavani, 1991. "Technical Efficiency in Indian Modern Small Scale Sector: An Application of Frontier Production function," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 26(2), pages 149-166, July.
  52. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  53. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
  54. Baldwin, Richard & Krugman, Paul, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 635-54, November.
  55. Griliches, Zvi & Regev, Haim, 1995. "Firm productivity in Israeli industry 1979-1988," Journal of Econometrics, Elsevier, vol. 65(1), pages 175-203, January.
  56. Haddad, Mona, 1993. "How trade liberalization affected productivity in Morocco," Policy Research Working Paper Series 1096, The World Bank.
  57. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  58. Bee Yan Aw & Xiaomin Chen & Mark J. Roberts, 1997. "Firm-level Evidence on Productivity Differentials, Turnover, and Exports in Taiwanese Manufacturing," NBER Working Papers 6235, National Bureau of Economic Research, Inc.
  59. William H. Greene, 1993. "Frontier Production Functions," Working Papers 93-20, New York University, Leonard N. Stern School of Business, Department of Economics.
  60. Evenson, Robert E. & Westphal, Larry E., 1995. "Technological change and technology strategy," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 37, pages 2209-2299 Elsevier.
  61. Page, John Jr., 1984. "Firm size and technical efficiency : Applications of production frontiers to Indian survey data," Journal of Development Economics, Elsevier, vol. 16(1-2), pages 129-152.
  62. Head, Keith & Ries, John, 1999. "Rationalization effects of tariff reductions," Journal of International Economics, Elsevier, vol. 47(2), pages 295-320, April.
  63. Ricardo Hausmann & Michael Gavin, 1996. "Securing Stability and Growth in a Shock Prone Region: The Policy Challenge for Latin America," IDB Publications (Working Papers) 5919, Inter-American Development Bank.
  64. Biggs, T. & Shah, M. & Srivastava, P., 1995. "Technological Capabilities and Learning in African Enterprises," Papers 288, World Bank - Technical Papers.
  65. Richard R. Nelson & Edmond S. Phelps, 1965. "Investment in Humans, Technological Diffusion and Economic Growth," Cowles Foundation Discussion Papers 189, Cowles Foundation for Research in Economics, Yale University.
  66. Richard E. Caves, 1992. "Industrial Efficiency in Six Nations," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031930, June.
  67. Levenson, Alec R. & Maloney, William F., 1998. "The informal sector, firm dynamics, and institutional participation," Policy Research Working Paper Series 1988, The World Bank.
  68. Devarajan, Shantayanan & Rodrik, Dani, 1991. "Pro-competitive effects of trade reform : Results from a CGE model of Cameroon," European Economic Review, Elsevier, vol. 35(5), pages 1157-1184, July.
  69. Pack, Howard, 1984. "Productivity and technical choice : Applications to the textile industry," Journal of Development Economics, Elsevier, vol. 16(1-2), pages 153-176.
  70. Pack, Howard & Westphal, Larry E., 1986. "Industrial strategy and technological change : Theory versus reality," Journal of Development Economics, Elsevier, vol. 22(1), pages 87-128, June.
  71. Fisher, Franklin M & McGowan, John J, 1983. "On the Misuse of Accounting Rates of Return to Infer Monopoly Profits," American Economic Review, American Economic Association, vol. 73(1), pages 82-97, March.
  72. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpdc:9805004. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.