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Manabu Nose
After a decade of rapid growth, industrialization has lost ground with shrinking manufacturing sector and high informality in Sub-Saharan Africa (SSA). This paper explores how land market and labor regulations affect factor allocative efficiency and firm performance in SSA. Using pooled data on firm balance sheets for 40 countries in SSA, the results identify significant land and labor misallocations due to limited market allocation of land and inappropriate regulatory policies. Using variations in ethnic diversity and the intensity of regulatory actions to peer firms at subnational level as instrumental variables, local average treatment effects show large productivity gains from factor reallocations, especially for marginally productive firms. Panel data results for Nigerian firms confirm factor market inefficiency as a principal driver of declining productivity, while showing that the 2011 minimum wage reform increased firm size. The results imply that improving formal regulation is critical to support firm growth at the stage of weak legal capacity, while informal sector monitoring gets effective as legal capacity develops.
Sophia Chen and Dongyeol Lee
We provide broad-based evidence of a firm size premium of total factor productivity (TFP) growth in Europe after the Global Financial Crisis. The TFP growth of smaller firms was more adversely affected and diverged from their larger counterparts after the crisis. The impact was progressively larger for medium, small, and micro firms relative to large firms. It was also disproportionally larger for firms with limited credit market access. Moreover, smaller firms were less likely to have access to safer banks: those that were better capitalized banks and with a presence in the credit default swap market. Horseraces suggest that firm size may be a more important and robust vulnerability indicator than balance sheet characteristics. Our results imply that the tightening of credit market conditions during the crisis, coupled with limited credit market access especially among micro, small, and medium firms, may have contributed to the large and persistent drop in aggregate TFP.
Sophia Chen and Dongyeol Lee

We provide broad-based evidence of a firm size premium of total factor productivity (TFP) growth in Europe after the Global Financial Crisis. The TFP growth of smaller firms was more adversely affected and diverged from their larger counterparts after the crisis. The impact was progressively larger for medium, small, and micro firms relative to large firms. It was also disproportionally larger for firms with limited credit market access. Moreover, smaller firms were less likely to have access to safer banks: those that were better capitalized banks and with a presence in the credit default swap market. Horseraces suggest that firm size may be a more important and robust vulnerability indicator than balance sheet characteristics. Our results imply that the tightening of credit market conditions during the crisis, coupled with limited credit market access especially among micro, small, and medium firms, may have contributed to the large and persistent drop in aggregate TFP.

William Gbohoui and Rui Castro

Entrant B. Aggregation C. Household D. Government E. Stationary Equilibrium III. Model Solution IV. Calibration V. Steady-State Properties A. Firm Size Distribution B. Firm Dynamics VI. Temporary Corporate Tax Cut A. Transitional Dynamics B. Corporate Tax Cut Multipliers C. Quantifying the Crowding-Out Effect VII. Discussion VIII. Conclusion References Appendices A. Stationary Equilibrium A.1. Firm Optimization A.2. Market Equilibrium B. Transition Dynamics Tables 1. Parameters Selected A Priori 2. Internal

Manabu Nose

Africa: Role of Efficient Factor Market in Firm Growth Prepared by Manabu Nose Authorized for distribution by Ali Mansoor August 2018 IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. Author’s E-Mail Address: MNose@imf.org , mnose@pp.u-tokyo.ac.jp Contents I. INTRODUCTION II. STYLIZED FACTS A. Firm

International Monetary Fund. Western Hemisphere Dept.

the household survey “Encuesta Permanente de Hogares, 2013”, we assess the size of the informal economy using several alternative and complementary measures. Specifically, we apply four different trigger conditions to identify the share of the workforce in the informal sector: a) firm size: considers that anybody working in a firm with five or less employees belongs to the informal sector; b) pension fund participation: anybody contributing to a pension fund is considered part of the formal economy; c) tax ID: a worker whose firm has a tax ID belongs to the formal

International Monetary Fund

percentage point tax rate reduction is allowed on the first $200,000 earned by a Canadian-controlled private corporation, reducing the effective tax rate from 28 percent to 12 percent. While this deduction is designed notionally to promote small business, it is available regardless of a firmssize or income. In addition, a preferential tax rate (21 percent as compared to 28 percent) is provided for manufacturing and processing enterprises ($0.4 billion in 1991). Substantial tax incentives for research development (R&D) also are provided ($0.6 billion in 1991). The

Ms. Era Dabla-Norris, Anh Thi Ngoc Nguyen, Ms. Yuanyan S Zhang, Thuy Dinh Pham, Nga Huong Phi, Duong Thuy Nguyen, and Tuan Danh Duong

: Standard errors in parentheses, *** p<0.01, ** p<0.05, * p<0.1. Large is a firm size dummy, taking value 1 if a firm is large or medium size, and 0 otherwise. Fixed effects control for industry, firm size (only in Panel A) and firm ownership. Figure 8: Difference in Effectiveness of Support by Policy Area and Firm Size We investigate this by examining heterogeneity by firm size. Specifically, we introduce an interaction term between credit support and the large firm dummy. The results, shown in Panel B of Table 5 , suggest that the effectiveness of