The Firms and Global Productivity initiative seeks to understand the underlying forces that drive productivity and how those forces affect economic growth in developing countries.
Scholars have long known that economies of developing countries are far less productive than economies of developed countries, but this productivity gap is poorly understood. Why are businesses in developed countries more efficient? How are they able to produce more goods and services from a given quantity of capital, labor, and materials? How much of the productivity gap stems from such factors as company management practices, a country’s overall business environment, and trade policy?
The Firms and Global Productivity initiative, a research and policy program of the Stanford Center for International Development (SCID), seeks to understand the underlying forces that drive productivity and how those forces affect economic growth in developing countries. The initiative supports Stanford faculty research on these vital questions, and promotes research partnerships between economists at Stanford and other institutions, including the International Growth Centre (IGC) at the London School of Economics. In keeping with SCID’s mission to support scholarship that addresses real-world problems, the initiative’s work has a clear policy focus. What does research tell us about policies that successfully foster economic growth? Firms and Global Productivity Initiative workshops, conferences, and other events provide valuable opportunities for cross-fertilization by bringing together academics and policymakers to examine these issues in depth.
Research supported by the initiative focuses on four critical areas: management skills in developing economies; how company business practices affect economy-wide productivity; the influence of trade policy on productivity; and how global value chains are reshaping production processes.
Economics of Management
Is weak management holding back growth in developing countries? The World Management Survey is breaking new ground by developing the first comparable measures of managerial quality in countries at different development levels. Over the past decade, they have collected data on management practices from over 20,000 manufacturing companies in nearly three dozen countries. The Firms and Global Productivity Initiative helps fund the survey’s work in China. This research has found large quality differences between developed and developing countries, and among developing countries, in areas such as company performance measurement. Survey researchers estimate these variations explain about 10 to 30 percent of the differences in economic growth across countries. This and related work can help governments design trade, education, and labor policies that raise business management quality.
Research suggests that much of the rapid growth of some emerging economies reflects higher productivity. It’s not just more investment and workers, but more efficient use of capital and labor that is propelling growth. But where are these productivity gains coming from? The initiative supports studies that are examining whether established companies or new entrants are driving the innovation that is boosting productivity in countries including China and India. This work could help policymakers pinpoint the sources of innovation in their economies.
Productivity and Trade
Developing countries confront both internal and external barriers to trade. In some parts of the world, obstacles such as poor roads make the cost of bringing goods to market four to five times higher than in the United States. At the same time, external trade restrictions can deprive developing countries of the benefits of open markets, including lower raw materials costs and easier financing. The Firms and Global Productivity Initiative is backing research aimed at calculating the size of the gains from removing trade barriers, which can help developing countries design trade policies that promote growth.
Global Value Chains
Global value chains—the sourcing of components from suppliers around the world—have revolutionized world trade and become a defining feature of manufacturing in the 21st century. By carrying out each step of the manufacturing process in the most cost-effective location, global sourcing lowers costs and increases efficiency. For developing countries, this production model provides openings to world markets, allowing them to collect some of the gains from rapidly growing world trade. But globalization of production also raises critical questions about paths of development, terms of trade, and impacts on workers and the environment. This initiative explores the impacts of increasing fragmentation and regional dispersion of global production on developing countries.