Development Review

Small firms induce more radical innovation, improving the market entry and exit dynamics by obsoleting older technologies. Firms require external finance to innovate and retain competitiveness. Compared to larger firms, small ones are more financially constrained. Yet, banks favor big firms by offering small firms different menu choices with higher interest rates, shorter maturities, and more collateral requirements. I provide some new evidence on the nature of this relationship across low-, middle-, and high-income countries. Then, I integrate these stylized empirical facts into a Schumpeterian growth model with heterogeneous firm dynamics. Counterfactual policy interventions to alleviate big firm suggest a 10% to 21% increase in the economic growth rate in the US.  

Better functioning financial markets support the economic growth trajectory. Moreover, credit market imperfections are a source of cross-country divergence. Countercyclical macroeconomic policy partially mitigates financial market imperfections.

What is the role of road infrastructures on local development? Inconclusively, rural road pavements increase firm-level activity in disconnected regions of India by 26 to 32 percent. Perhaps economic infrastructure has a crucial impact on the local development of disconnected regions but the mission should be to explain why this causal link holds to help for the empirical identification process as well. 

The average cognitive skill level of a nation has a causal link to that nation's growth path. On average an increase in overall cognitive skills in a country could lead to a 4.9 percent increase in income per capita growth rate. From a long-run perspective, this could reshape the future of a country immensely. In less than 16 years, a country could double its GDP per capita. 

What is the problem that we wish to solve utilizing an inclusive economic growth process? The need for a more inclusive and sustainable model of growth and development is one of the riddles of social scientific research. Yet, the literature has not made enough progress on this topic. The economic growth is a convoluted process and requires local and circumstantial analysis to develop sound strategies. Micro- and meso-foundational approaches could explain the inclusive economic growth process partially. What remains is how could we implement it in reality to tackle the challenges of the 21st century. What we say determines, how we act. We need to pursue our ideologies to try to refute current thought practices.