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.
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.
Project ongoing. Results forthcoming.