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 2010–2014, 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’ techno-logical capabilities while improving the broader business environment in developing economies.

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

Mots clés: Croissance des entreprises ; Caractéristiques des entreprises ; Environnement des affaires ; Accès au financement ; Pays MENA.