Institutions, Firm Growth, and Economic Development

The macroeconomic institutions literature has demonstrated the importance of institutions in promoting economic development and growth.  Economists are now digging deeper to understand the microfoundations of this growth at the level of individual firms.  A feature of developing economies is that fledgling firms find it more difficult to grow than their counterparts in developed countries and remain small throughout their lives.  Seeking to explain this feature, a popular hypothesis is that small firms find it difficult to grow because capital markets do not function efficiently and so firms are credit constrained.  But if this were true then small developing country firms should exhibit high productivity at the margin.  Recent detailed econometric work at the firm level has found that firm level productivity in developing countries is in fact quite low.

A new literature proposes that firms in developing countries are unproductive due to poor management, an idea first introduced by Penrose (1959) but only tested recently through the emergence of appropriate data.  This new literature argues that firms in developing countries remain small because, in the presence of weak contract enforcement institutions, it is difficult for them to incentivize managers appropriately.  As a result managerial decisions are restricted to the families who own the firms, limiting the potential for firm growth.  A striking predictor of firm size in developing countries is the number of male members in the family that owns the firm.  Although progress has been made recently in understanding the importance of institutions for managerial effectiveness, many questions remain open.  For example, what is the external validity of the findings for management effectiveness in the sectors where this research has been undertaken?  What are the links to established theories of management?  Can field experiments be used to discover the most effective management practices?

Akcigit, Ufuk, Harun Alp, and Michael Peters (2014) “Lack of Selection and Limits to Delegation: Firm Dynamics in Developing Countries”, Working Paper.

Beck, Thorsten, Asli Demirgüç-Kunt, and Vojislav Maksimovic (2005) “Financial and Legal Constraints to Firm Growth: Does Firm Size Matter?”, Journal of Finance, 60: 137-177. [Working paper version]

Bloom, Nicholas., and John Van Reenen (2007): “Measuring and Explaining Management Practices Across Firms and Countries”, Quarterly Journal of Economics, 122 (4): 1351-1408 [Working paper version]

Bloom, Nicholas., and John Van Reenen  (2010): “Why Do Management Practices Differ across Firms and Countries?”, Journal of Economic Perspectives, 24(1): 203–224.

La Porta, Rafael, Florencio Lopez-de-Silanes , Andrei Shleifer, and Robert W. Vishny, (1997) “Legal Determinants of External Finance”, Journal of Finance 52: 1131- 1150.

Laeven Luc and Christopher Woodruff (2007) “The Quality of the Legal System, Firm Ownership, and Firm Size”, Review of Economics and Statistics, 89(4): 601-614. [Working paper version]

Hsieh, Chang-Tai and Benjamin A. Olken (2014) “The Missing ‘Missing Middle’”,  Journal of Economic Perspectives, 28(3): 89–108.

Penrose, Edith T. (1959) Theory of the Growth of Firms. J. Wiley & Sons, New York

SARIC: Apply for funding

Call status: Open
Application deadline: 16 September 2015, 4pm

BBSRC, NERC and ESRC invite proposals for both research and research translation projects to the second call of the Sustainable Agriculture Research & Innovation Club. Approximately £5M of funding is available for this call, divided between:

  • research grants (£3.5M)
  • research translation grants (£1.5M)

Guidance about the process for submitting outline research applications and research translation applications are described in the call text (see downloads).


Researchers may apply for two different funding streams which will support research grants and innvovation grants respectively. Both funding streams will operate concurrently:

  • Research proposals which will provide new data and knowledge (research grants – see annex 1 of the call text for specific guidelines)
  • Research translation proposals which will support innovative approaches to translating existing research data and knowledge into new tools, technologies and other outcomes that create tangible economic or societal benefits (innovation grants – see annex 2 of the call text for specific guidelines)
  1. Applications must fit with the first key challenge of SARIC (predictive capabilities for sustainable agriculture), as described in the call text (see downloads)
  2. Applications must fall at the interface or within the remit of BBSRC, NERC and ESRC (see external links)
  3. It is likely that the aims of this Club can best be achieved by an interdisciplinary approach. Therefore, we particularly encourage collaborative applications which bring together groups with relevant expertise or experience to move research closer
  4. Research projects are typically 3-4 years in duration, but projects up to 5 years will be considered. Research translation projects will typically be 1-2 years in duration, but projects up to 3 years will be considered


A workshop for both calls will be held on 1 July 2015 at the Mariott Hotel, Grosvenor Square, London. The workshop will be an opportunity for applicants to:

  • understand the SARIC research challenges and assessment process
  • meet other potential applicants and form new collaborations
  • discuss proposals with representatives from the SARIC steering group, the Club’s company members and the Research Councils

Please register here:


Standard RCUK eligibility rules for BBSRC, NERC and ESRC apply to this call.

How to apply

Full guidance can be found in the call text (see downloads). Please note that the research translation call is a single stage process, whereas the research call has two stages.

External contact

Jodie Clarke, NERC

+44 1793 418004

Lorna Friis, ESRC

+44 1793 413024

Paul Meaking, SARIC coordinator

+44 7972 842897

David Telford, SARIC coordinator

+44 1316 517331


Stephen Norton

+44 1793 411662

Click here for link to original call

Mini-Conference at Bocconi University

You are invited to an AIB (Academy of International Business) mini-conference at Bocconi University, Milan, Italy on October 30th and 31st, 2015.

The theme is “Breaking up the global value chain: Possibilities and consequences” with Keynote speeches by Juan Alcacer (Harvard Business School) and John Cantwell (Rutgers Business School).

The conference will cover issues like:

  • What are the macro-economic and institutional conditions explaining the international fragmentation and geographical dispersion of the value chains?
  • Under what conditions is it beneficial to keep the different business activities in the same location rather than splitting and decentralize them across companies and countries’ boundaries? What are the organizational challenges?
  • What are the costs of offshoring? Who benefits from offshoring? Is it society at large, customers, employees? What are spill-over effects of offshoring?
  • What are the challenges for policy makers? What can be done in order to promote the manufacturing activities in advanced countries?

Submission guidelines: Participants who wish to present their research at the conference are invited to submit an extended abstract not exceeding 1,000 words through the conference website no later than September 1st 2015.

For more information on the conference website: – or approach us on the email:

We look forward to you joining us in Milan.
Arnaldo Camuffo, Torben Pedersen – Bocconi University
Stefano Elia, Lucia Piscitello –   Politecnico di Milano