Evidence for developed and, increasingly, developing countries shows that a small fraction of firms - some 4-20 percent of the total - accounts for most of an economy's job and output creation. A central question for policymakers is therefore how to enable a greater number of growth-oriented businesses to emerge and reach scale. Should countries pursue broad--based policy reforms to minimize distortions and increase allocative efficiency, or could public resources be used more effectively by targeting these high-performing, rapidly-growing firms?
This report presents new evidence on the incidence, characteristics, and drivers of high-growth firms in developing countries based on in-depth study of firm dynamics in Cote d'Ivoire, Brazil, Ethiopia, Hungary, India, Indonesia, Mexico, South Africa, Thailand, Tunisia, and Turkey. The analysis reveals that high-growth firms are not only powerful engines of jobs and output growth, but also create positive spillovers up and down the value chain because of their abilities to innovate, attract talent, and leverage global linkages and agglomeration.
On a more cautionary note, the analysis shows that most high-growth firms struggle to sustain rapid rates of expansion and that high growth does not substantially increase the likelihood of survival. The reason is that the relationship between high growth and productivity is weak, often obscured by distortions that not only lower the overall incidence of high firm growth but also misallocate resources in a way that allows less efficient firms to attain high growth.
Hence, this report argues that policy makers should seek to reinforce high-growth episodes across all firms rather than searching for high-potential 'winners.' To achieve this, the report proposes a reorientation of public policy towards the ABCs of growth entrepreneurship: improving Allocative efficiency, encouraging Business-to-business spillovers, and strengthening firm capabilities.
This report is the third volume of the World Bank Productivity Project, which seeks to bring frontier thinking on the measurement and determinants of productivity to global policy makers.