Missing firm growth in developing countries: a firm-level analysis

Hicham Doghmi () and Kamal Lahlou
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Hicham Doghmi: Central Bank of Morocco

No 05-2026, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: Missing firm growth in developing countries: a firm-level analysisWhat are the key determinants of firm growth in developing countries? Using firm-level data from the World Bank Enterprise Surveys (WBES) spanning 2010–2024, we examine the impact of three distinct categories of factors on firm growth dynamics: (1) firm-level characteristics, (2) contextual factors, and (3) access to finance. Our analysis reveals that each category is essential, with both internal capabilities and external conditions playing complementary roles in shaping firm growth trajectories. We find that firms with stronger technological capabilities achieve significantly higher growth. In contrast, firms facing greater exposure to political instability and financing constraints experience markedly slower growth, with small firms being significantly more vulnerable to such constraints than large firms. Access to bank financing at the firm and sector levels is associated with robust growth gains. These findings are not driven by omitted variable bias or reverse causality; they remain robust across a wide range of sensitivity analyses and estimation strategies, including matching techniques and an instrumental variable (IV) strategy. Exploring the mechanism underlying the adverse effects of the business environment, we show that political instability and financing constraints impede the development of firms’ technological capabilities, which in turn undermines their growth potential. Our results underscore the importance of both firm-level capabilities and the broader enabling environment in fostering private sector development in developing economies.

Keywords: Firm growth; Firm characteristics; Institutional quality; Access to credit; MENA countries (search for similar items in EconPapers)
JEL-codes: D22 G30 J00 L25 O12 O14 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2026-03-05
New Economics Papers: this item is included in nep-dev, nep-ent and nep-sbm
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