Essays on Firm Performance and Dynamics in Developing Countries

The three chapters of this dissertation are devoted to understanding the role of formal private sector firms and entrepreneurship in developing countries towards promoting growth. In Chapter 1, I study firm dynamics using a novel database of all formally registered firms in Cote d'Ivoire from 1977--1997, which account for about 60% of GDP. First, I examine entry and exit patterns over this period and the role of new and exiting firms versus incumbents in job creation and destruction. In comparison with the U.S., new firms play a relatively important role in job creation and growth, particularly during periods of political uncertainty. Yet, in absolute terms, incumbent firms have a much larger impact on net employment. Next, I examine survival rates and find that survival increases monotonically with firm size. Furthermore, higher GDP growth increases survival rates, and periods of economic growth have the largest impact on the reduction in the exit rates of small firms, relative to large firms. In Chapter 2 I explore why developing countries exhibit a different distribution of firm sizes in the formal private sector relative to developed countries and find evidence that these distributional differences are driven by institutional weaknesses, which might indicate tax avoidance. Using a unique data set that covers the entire formal private sector of Cote d'Ivoire over the period 1998--2003, I develop an extension of Hsieh and Klenow (2009) to quantify the output and welfare effects of moving to a more efficient firm size distribution when firm-specific distortions are removed and estimate output gains of -8% to 32%, while value added gains of 39% to 66% are calculated. This corresponds to GDP per capita rising to USD800-USD910 from USD650. Finally, Chapter 3 paper summarizes the key perceptions of men and women around the world about financial security, the value of work, and attitudes towards women in the workforce, and relates these perceptions to female labor force participation and self-employment. I examine both differences across countries and regions and over time. I find that country-level perceptions and attitudes of men and women towards the value of work and the role that working women should play in a country influences female labor force participation rates and participation in formal entrepreneurship activities. However, over time perceptions and attitudes towards women have been showing encouraging signs of improvement, which is occurring simultaneously with improvements in labor force participation and entrepreneurship activities. I note that across regions there are strong perceptions about the role of women in the economy and in order to make a sustainable change in the composition of the labor force and witness an increase in female entrepreneurship activity, these cultural attitudes should be incorporated into the policy dialogue.