Linkages Between Sustainable High Growth and Job Creation in Emerging Economies

High-growth firms in emerging economies account for more than 50 percent of all new jobs and sales despite making up less than 20 percent of all firms in manufacturing and services.

These firms create a domino effect on others through increased demand and/or offering improved access to inputs.

A new World Bank Group report, ”High-Growth Firms: Facts, Fiction and Policy Options for Emerging Economies” acknowledges that the extraordinary capabilities of high-growth firms have attracted the interest of policymakers who are keen to figure out how to encourage the establishment of more of these high-performing firms to boost economic performance. 

Policies to create jobs, promote entrepreneurship and growth are key priorities for many emerging economies. Designing and implementing reforms is particularly challenging as policymakers attempt to strike a balance across sectors, firm size and incentives that can sustain growth in a rapidly changing global economy.

High-growth firms accounting for approximately 3-20 percent of the manufacturing and service industries are of particular interest as a growth model considering their contribution to more than 50 percent of new jobs and sales in these sectors.

According to the report, the link between productivity and high growth is often weak; as firms may grow for a variety of reasons beyond technical efficiency.

The report further reveals that, in many instances, high growth episodes are tough to sustain and difficult to predict. Policies designed to improve firm dynamism and support job creation need to steer away from a selective focus on potential winners. Instead, they should support what the report calls “the ABCs of growth entrepreneurship”: (a) improving Allocative efficiency, (b) strengthening Business-to-business spillovers, and (c) building firm Capabilities.

The report discloses that most high-growth firms in developing countries are spread across a variety of sectors and regions and the majority began as a medium or large company, and as a recommendation, public policies aimed at facilitating firm dynamism and growth do not overemphasize size, sector, technology content or location as selection criteria for policy interventions.

Therefore, improving the quality and accessibility of firm-level data, expanding the use and scope of policy evaluation, while strengthening institutional capabilities to support entrepreneurship are key priorities for the effective implementation of high-growth policies.