Startups in developing countries grow more slowly over their life cycle than those in high-income countries, but the reason why is not understood. Slow growth could be due to difficulties for firms’ increasing productivity or because of difficulties boosting demand for their products. Researchers are using a dataset on Colombian manufacturing establishments, including SMEs, spanning over 20 years to characterize variation in productivity and demand growth over the life cycle of firms, and establish the extent to which this variation can be tied to differences in institutions, in particular the degree of trade protection. To analyze the latter, researchers are examining the growth of firms over their life cycle before and after a trade liberalization episode in the 1990s in Colombia that affected various firms differently.

Policy Issue 

Note: This is not a randomized controlled trial

Startups in the developing world grow more slowly over their life cycle than those in high-income countries. However, the reasons for these differences are not well understood. Firms may have difficulty increasing their productivity, but it is also possible that they may have trouble increasing demand. Understanding the contributions of these factors is important because the set of firm choices and government policies that may affect a business’ ability to boost demand may be potentially different from the set of those that affect production. This study seeks to better understand the relative contribution of each, and how they are affected by changes in trade protections.

Context of the Evaluation 
Colombia’s manufacturing sector accounts for approximately 13 percent of the country’s GDP, but including the broader production chain (such as transportation), it is 35 percent.  In the early 1990s, Colombia, like many developing economies, underwent important market restructuring and trade-liberalization designed to improve efficiency. These reforms affected various manufacturing sectors and firms differently.
Details of the Intervention 
This study uses data from the Colombian manufacturing sector from 1982-2012, which includes the period of trade reform. Researchers are using the data from all of the country’s small and medium manufacturing firms to explore how they grew over time and how they were affected by the trade reforms. The researchers are exploring the relationships between rates of growth and productivity versus demand over the life of the firms. 
Results and Policy Lessons 

Project ongoing. Results forthcoming.