The limited market size of many small emerging economies is a key constraint to the growth of innovative small and medium enterprises. Exporting offers a potential solution, but firms may struggle to locate and appeal to foreign buyers. We conducted a six-country randomized experiment with 225 firms in the Western Balkans to test the effectiveness of 30 h of live groupbased training and 5 h of one-on-one remote consulting in overcoming these constraints. Treated firms used techniques such as search engine optimization and improved Facebook content to increase their digital presence and better reach foreign customers. A year later, we find positive and significant impacts on the number of customers, and a significant intensive margin increase in export sales. Qualitative interviews suggest this improvement came from a combination of sector-specific advice on market expansion, and through an encouragement effect which gave entrepreneurs the confidence to try new sales strategies. & COPY; 2023 Published by Elsevier B.V.

This paper employs a matched firm production-innovation panel dataset from Chile to explore the response of firm innovation to the increased competition arising from the China shock. The data cover a wider range of innovation inputs and outputs than previously possible and allow generating measures of markups and efficiency (TFPQ) that correspond closely to the concepts of rents and technological leadership envisaged in the Schumpeterian literature. Except for the 10 percent most productive plants that see an increase in quality, increased competition depresses most measures of innovation. These differences are exacerbated when interacted with plant-level movements in rents. (JEL D24, L25, L60, O14, O19, O31, O34)

Presents the evidence of the "digital paradox" in the Middle East and North Africa (MENA) and explains why general-purpose technologies such as digital tools should have economywide benefits. Whatever the reasons for the slow growth of the region's digital economy, it clearly does not reflect insufficient coverage of information and communication technology (ICT) infrastructure, slow internet speeds, or insufficient access to the internet. Notably, while the use of social media per capita in countries in the region outperforms that in comparator countries, the use of digital payments underperforms that of comparator countries. Yet without wider diffusion of digital payments, the region's digital economy will remain nascent. For society to adopt the widespread use of digital technologies to conduct economic transactions, however, users have to trust the regulatory environment, the financial or banking institutions, and the government itself. In this light, the region's digital paradox might rest on gaps in societal trust.

Presents evidence of how digital technologies can help to overcome market frictions, summarizing evidence concerning the impact of digitalization on information flows from ride-hailing platforms, on overcoming barriers to physical mobility, and on demand for tourism services. The first example highlights how data from digital platforms provide information on the quality of service providers, thereby overcoming information asymmetries between drivers and riders in ride-hailing apps and contributing to improved service quality over time. The second example describes the role of digital technologies, specifically information and communication technologies (ICTs), in enabling information technology (IT) firms in West Bank to overcome barriers to physical mobility. The third example highlights tourism service providers' use of the internet, which has the effect of reducing the barriers posed by geographic distance and language differences and thereby increasing the demand for tourism services. Digital tools can either create new data or aggregate existing data into information useful to firms, consumers, and investors.

Presents the analytical framework and results concerning the impact of digitalization on gross domestic product (GDP) per capita, revenue productivity of formal manufacturing enterprises, labor market outcomes, and tourism flows. GDP per capita could rise by more than 40 percent when digital infrastructure services approach universal coverage in the low- and middle-income economies of the Middle East and North Africa (MENA). Manufacturing productivity could rise by double digits when all formal manufacturing enterprises adopt business websites, and jobs in the sector could increase significantly. Furthermore, both results could occur relatively quickly if the digitalization of enterprises targets low-productivity firms first. Tourist arrivals could increase by 70 percent when the MENA region reaches the maximum possible business-to-consumer (B2C) scores, creating a significant number of jobs. All adults adopting digital payments could virtually eliminate frictional unemployment and almost double female labor force participation (FLFP). The issue, however, remains how fast the region's population can achieve universal coverage.

Discusses the three essential pillars—digital infrastructure, digital payment system, and regulatory framework for e-commerce—underpinning the creation of an enabling digital environment and a well-functioning digital economy, exploring the performance of countries in the Middle East and North Africa (MENA) compared to other countries at similar levels of gross domestic product (GDP) per capita. While these pillars prove necessary, they remain insufficient. MENA countries significantly underperform in digital payments, deviating by 15 percent from its predicted adoption level, conditional on the level of development. The lag in digital payments exists not only because of lagging information and communication technology (ICT) infrastructure, nor apparently because of banking sector constraints, but rather because this underperformance applies not only to digital payment methods but also to traditional payment systems. A modernized regulatory framework, or one flexible enough to adapt to new technologies, would help to build the trust needed to induce consumers to shift away from using cash.

Provides a framework for understanding the interactions between the development of digital infrastructure, use of digital tools, and societal trust in government. Digital technologies can help overcome informational frictions hampering the functioning of markets. Yet developing a digital economy requires establishing an enabling regulatory environment that creates the right incentives not only for the development of digital infrastructure (coverage, affordability, quality), digital products and services, and digital marketplaces, but also for the adoption of digital tools such as digital payments. In addition, societal trust—among citizens, between citizens and their governments, between citizens and key institutions such as banks—proves important for the development of a digital economy. The best predictors for adoption of digital payment and banking include trust, perceived security, and perceived usefulness of the payment or banking tool. Once the supply and demand sides of the digital economy develop, digitalization fosters efficient market intermediation through lower search, transaction, and transportation costs.

The diffusion of knowledge plays a central role in endogenous growth theories. In these models, new knowledge can be generated from pre-existing knowledge produced anywhere in the world. Endogenous growth theories rely on a broad set of assumptions that have not been tested sufficiently, especially in the context of developing economies. This paper empirically assesses the scope and direction of knowledge spillovers in patenting at the country level and, separately, in product releases and quality upgrading by firms. The first set of exercises tests whether the cumulative knowledge specifications of the knowledge production function can explain international patterns of patenting or whether only domestic research and development is necessary to produce patents. The second set of exercises analyses whether sound product-quality upgrading and the introduction of new products depend on these same variables at the industry level across countries. The evidence supports the view that existing stocks of domestic and international knowledge boost national innovation and entrepreneurship in the form of product innovation. More specifically, the evidence suggests that domestic and international knowledge spillovers are positive, but international spillovers can be negative for firms that are far from innovative firms in terms of productivity.

Innovative firms with good ideas may still struggle to fine-tune them to the stage where they can attract outside funding. We conduct a five-country randomized experiment that tests the impact of an investment readiness program. Firms then pitched their ideas to independent judges. The program resulted in a 0.3 standard deviation increase in the investment readiness score. Two years later, the average impacts on firm investment outcomes are positive, but small in magnitude, and not statistically significant. Larger and statistically significant impacts on receiving outside funding occur for smaller firms, and for firms with lower likelihoods of otherwise being funded.

This paper investigates the sources of capital misallocation across a group of developing and developed countries, using the empirical methodology developed in David and Venkateswaran (2019. "The Sources of Capital Misallocation." American Economic Review 109 (7): 2531-67). The main findings are: (i) technological frictions-namely, adjustment costs and uncertainty-account for only a modest share of the observed misallocation; (ii) heterogeneity in firm-level technologies potentially explains between one-quarter and one-half, but (iii) dispersion in markups is much smaller; (iv) after accounting for these factors, on average, at least 50 percent of misallocation within each country remains unexplained, suggesting a large role for additional- potentially distortionary-factors. These factors are largely attributable to a component that is correlated with firm size/productivity and one that is essentially permanent to the firm. They exhibit strong negative correlations with income per capita and direct measures of the quality of the business environment from the World Bank Doing Business Report. The paper reports a broad set of moments describing firm-level investment dynamics and detailed parameter estimates on a country-by-country basis with an eye towards future work in this area.

This paper presents firm-level estimates of revenue-based total factor productivity premiums of manufacturing firms adopting digital technology in 82 developing economies over 2002-19. The paper estimates productivity using the control function approach and assuming an endogenous revenue-based total factor productivity process, which is a function of multiple firm-choice variables. It estimates the effects of digital technology adoption, learning by exporting, and managerial experience on revenue-based total factor productivity and factor demand. The results reject the null hypothesis of an exogenous revenue-based total factor productivity process, in favor of one in which digital technology adoption, along with the other choice variables, affects revenue-based total factor productivity and factor demand. The estimated premiums are positive for 67.3 (email adoption), 54.6 (website adoption), 59.4 (learning by exporting), and 60.6 (managerial experience) percent of the sample. The probability-adjusted median (log) revenue-based total factor productivity premium associated with email adoption is 1.6 percent and that of website adoption is 2.2 percent, with the latter being higher than the premiums corresponding to exporting and managerial experience. On average, changes in digital technology adoption, email, and website are labor and capital augmenting. The paper also explores the role of complementarities among the firm choice variables.

This paper describes and benchmarks innovation activities for a sample of countries in the South Asia region, as well as the impact of these activities on firm-level productivity. The evidence gathered suggests that countries in the South Asia region can be divided into two groups, both in terms of the magnitude and composition of the innovation activities: leaders (Bangladesh and India) and laggards (Nepal and Pakistan). Leaders present higher rates of innovation activities than laggards and focus more on process innovation than in product innovation. Also, differences across-firms within all countries tend to present similar patterns when considering both leaders and laggards; with the acquisition of knowledge capital (e.g., R&D, investments in equipment, training) highly concentrated in few firms, and mature, exporter, and foreign-owned firms as the most innovative of the region. The evidence also suggests a positive impact of innovation on productivity, primarily via incremental innovation, especially in India.

Documents major shifts in measurement and conceptualization of "within" firm productivity. Policies to improve firm performance and growth need to move beyond a narrow focus on efficiency to explore the upgrading of product quality and the cultivation of demand. All require improvements both on the human capital side and in the operating environment. Both efficiency and quality require strengthening the ability of firms to identify, adapt, and implement new productive technologies and processes (technology transfer). Both require investments in "innovation," ranging from improving managerial practices to licensing of technologies, and R&D, as well as specific initiatives in quality infrastructure and marketing. In terms of cultivating demand, a need exists to rebalance business support services, as well as explore policies to (1) reduce search, matching, and informational frictions; (2) strengthen links to multinational firms and facilitate access to global value chains; (3) develop networks; and (4) facilitate investments in marketing and advertising.

No AccessDec 2018Misallocation, Dispersion, and RiskAuthors/Editors: Ana Paula Cusolito, William F. MaloneyAna Paula CusolitoSearch for more papers by this author, William F. MaloneySearch for more papers by this authorhttps://doi.org/10.1596/978-1-4648-1334-4_ch3AboutView ChaptersFull TextPDF (0.3 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract: Examines the “between” margin, or reallocation component, of productivity development, discussing (1) how conceptually and empirically a popular measure of misallocation and distortion—total factor productivity (TFP) dispersion—proves unreliable, because it conflates risk, adjustment rigidities, markups, and quality, among other factors, and overstates the development effect of reallocation through reform; and (2) how the effects of barriers to reallocation through the channels of investment in upgrading within firms and the entry of better firms prove larger than previously thought. Allocating factors of production to the most productive firms does prove a critical function of a well-functioning economy, though it has only accounted for perhaps 25 percent of efficiency growth in several developing countries. Even if the static “one-off” gains from reallocation remain less than originally thought, however, distortions in the operating environment also have “dynamic” impacts on investments in managerial and technical capabilities, or the R&D required to raise efficiency and product quality. ReferencesAsker, J, A Collard-Wexler, and J De Loecker. 2014. “Dynamic Inputs and Resource (Mis)Allocation.” Journal of Political Economy 122 (5): 1013–63. CrossrefGoogle ScholarBaily, M N, C Hulten, and D Campbell. 1992. “The Distribution of Productivity in Manufacturing Plants.” Brookings Papers: Microeconomics 1992, 187–267. 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Studies the "selection" margin of productive and unproductive firms, discussing recent advances in thinking around the generation of high-quality entrants by (1) presenting some of the earliest evidence on patterns of entry and exit in developing countries over time; (2) providing a simple framework of entrepreneurship as experimentation integrating both considerations of operational environment and a variety of types of human capital; (3) exploring new literature on the role of personality and other characteristics of entrepreneurs based on emerging detailed data sets; and (4) approaching issues of culture, human capital, and environment, taking a longer view using historical examples. The entry of more productive firms, and the exit of less productive firms, in a period of "normal" economic activity prove an important contributor to productivity growth and remain the central players in structural transformation, but the process requires the identification of ideas for new industries and entrepreneurs to start and run them.