2026

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

Hicham Doghmi, Kamal Lahlou

Abstract: What 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 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 trajec-tories. We find that firms with stronger technological capabilities achieve significantly higher growth. By contrast, firms constrained by political instability and financing constraints experi-ence markedly slower growth, with small firms more vulnerable to both constraints than larger firms. Access to bank financing at both the firm and the region-and-sector levels is associated with substantial growth gains. These findings remain robust across a wide range of sensitivity analyses and estimation strategies, including matching techniques and an instrumental variables (IV) strategy. Exploring the mechanisms underlying the adverse effects of business environment constraints, we further show that political instability and financing constraints operate through a common channel; they weaken firms’ technological capabilities, which in turn dampen their growth potential. Our results underscore the importance of policies that strengthen firms’ technological capabilities while improving the broader business environment in developing economies.

JEL Classification : G21 ; L25 ; O12 ; O14 ; O43.

Keywords : Firm growth; Firm characteristics; Business environment; Access to finance; MENA countries

A DSGE Model for a Small Open Economy with a CBDC Option

Michael Kumhof, Mohammed Mikou, Yassine Slaoui

Abstract: This paper develops a small open economy DSGE model for central bank policy analysis. The model’s structure and calibration are based on the Moroccan economy, but with minor modifications it can be adapted to other economies. The framework features two household groups, banked households who have access to cash but also to credit and therefore use deposits as medium of exchange, and unbanked households who rely primarily on cash. Households interact with banks, financial investors, firms, unions, a fiscal authority, a central bank, and the external sector. The model can be simulated either with or without a retail CBDC, which is introduced as an additional payment instrument alongside cash and bank deposits. A key mechanism in the model is the interaction between real decisions and payment frictions. Consumptionand production-related payments are subject to money-in-advance constraints, where money or liquidity is a composite of cash, deposits, and—when introduced—CBDC.
Any scarcity of money therefore affects spending, marginal costs and inflation, while credit frictions link collateral quality and default risk to the scarcity of money. The paper finds that, under the model’s baseline assumptions, the introduction of CBDC causes modest steady state output gains and modest improvements in the economy’s ability to deal with financial shocks.

JEL classification: E31, E37, E42, E44, E52, E58, F41, G21. 

Keywords: DSGE, small open economy; CBDC, money-in-advance constraints; banking sector, monetary policy, fiscal policy, financial stability, Morocco.