Firm size matters: Growth and productivity growth in African manufacturing

Using a rich panel data set of manufacturing firms in nine sub-Saharan African countries, I document important differences in the evolution of the size and productivity distribution between firms in Africa and those in the United States and other more developed countries. American firms follow a life cycle. Firms enter, on average, at a smaller scale and with lower productivity. Many exit shortly after entering, while the survivors quickly converge to the industry average size and productivity level. Exit from the industry by mature firms is generally preceded by a period of declining size and productivity. In Africa, however, the largest and most productive firms also display the highest growth rates and contribute disproportionately to aggregate growth. This leads to divergence between firms at the top and bottom of the distribution. Small firms rarely reach the top of the size and productivity distribution. The remainder of the article is organized as follows. In Section II, the countries and firms are introduced, and the sampling frame is discussed. After a review of the literature in Section III, it is shown in Section IV that firm size matters a great deal in the evolution of the size and productivity distribution of African manufacturing firms. The interaction of the two factor markets with firm-level and aggregate productivity is evaluated in Section V. Conclusions are in Section VI. © 2005 by The University of Chicago. All rights reserved.