The Missing “Missing Middle”
Although a large literature seeks to explain the "missing middle" of mid-sized firms in developing countries, there is surprisingly little empirical backing for existence of the missing middle. Using microdata on the full distribution of both formal and informal sector manufacturing firms...
| Main Authors: | , |
|---|---|
| Other Authors: | |
| Format: | Article |
| Language: | en_US |
| Published: |
American Economic Association
2015
|
| Online Access: | http://hdl.handle.net/1721.1/96156 https://orcid.org/0000-0003-1918-4631 |
| _version_ | 1811087496452243456 |
|---|---|
| author | Hsieh, Chang-Tai Olken, Benjamin A. |
| author2 | Massachusetts Institute of Technology. Department of Economics |
| author_facet | Massachusetts Institute of Technology. Department of Economics Hsieh, Chang-Tai Olken, Benjamin A. |
| author_sort | Hsieh, Chang-Tai |
| collection | MIT |
| description | Although a large literature seeks to explain the "missing middle" of mid-sized firms in developing countries, there is surprisingly little empirical backing for existence of the missing middle. Using microdata on the full distribution of both formal and informal sector manufacturing firms in India, Indonesia, and Mexico, we document three facts. First, while there are a very large number of small firms, there is no "missing middle" in the sense of a bimodal distribution: mid-sized firms are missing, but large firms are missing too, and the fraction of firms of a given size is smoothly declining in firm size. Second, we show that the distribution of average products of capital and labor is unimodal, and that large firms, not small firms, have higher average products. This is inconsistent with many models explaining "the missing middle" in which small firms with high returns are constrained from expanding. Third, we examine regulatory and tax notches in India, Indonesia, and Mexico of the sort often thought to discourage firm growth and find no economically meaningful bunching of firms near the notch points. We show that existing beliefs about the missing middle are largely due to arbitrary transformations that were made to the data in previous studies. |
| first_indexed | 2024-09-23T13:47:01Z |
| format | Article |
| id | mit-1721.1/96156 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T13:47:01Z |
| publishDate | 2015 |
| publisher | American Economic Association |
| record_format | dspace |
| spelling | mit-1721.1/961562022-10-01T17:06:57Z The Missing “Missing Middle” Hsieh, Chang-Tai Olken, Benjamin A. Massachusetts Institute of Technology. Department of Economics Olken, Benjamin A. Although a large literature seeks to explain the "missing middle" of mid-sized firms in developing countries, there is surprisingly little empirical backing for existence of the missing middle. Using microdata on the full distribution of both formal and informal sector manufacturing firms in India, Indonesia, and Mexico, we document three facts. First, while there are a very large number of small firms, there is no "missing middle" in the sense of a bimodal distribution: mid-sized firms are missing, but large firms are missing too, and the fraction of firms of a given size is smoothly declining in firm size. Second, we show that the distribution of average products of capital and labor is unimodal, and that large firms, not small firms, have higher average products. This is inconsistent with many models explaining "the missing middle" in which small firms with high returns are constrained from expanding. Third, we examine regulatory and tax notches in India, Indonesia, and Mexico of the sort often thought to discourage firm growth and find no economically meaningful bunching of firms near the notch points. We show that existing beliefs about the missing middle are largely due to arbitrary transformations that were made to the data in previous studies. 2015-03-24T18:51:51Z 2015-03-24T18:51:51Z 2014-08 Article http://purl.org/eprint/type/JournalArticle 0895-3309 1944-7965 http://hdl.handle.net/1721.1/96156 Hsieh, Chang-Tai, and Benjamin A. Olken. “ The Missing ‘Missing Middle’ .” Journal of Economic Perspectives 28, no. 3 (August 2014): 89–108. © 2014 American Economic Association https://orcid.org/0000-0003-1918-4631 en_US http://dx.doi.org/10.1257/jep.28.3.89 Journal of Economic Perspectives Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use. application/pdf American Economic Association American Economic Association |
| spellingShingle | Hsieh, Chang-Tai Olken, Benjamin A. The Missing “Missing Middle” |
| title | The Missing “Missing Middle” |
| title_full | The Missing “Missing Middle” |
| title_fullStr | The Missing “Missing Middle” |
| title_full_unstemmed | The Missing “Missing Middle” |
| title_short | The Missing “Missing Middle” |
| title_sort | missing missing middle |
| url | http://hdl.handle.net/1721.1/96156 https://orcid.org/0000-0003-1918-4631 |
| work_keys_str_mv | AT hsiehchangtai themissingmissingmiddle AT olkenbenjamina themissingmissingmiddle AT hsiehchangtai missingmissingmiddle AT olkenbenjamina missingmissingmiddle |