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The missing middle: firms in developing countries
The central question of development economics is simple: how can poor countries become rich? The answer is neither small-scale, targeted interventions nor broad generalizations about growth. Instead, we should focus on firms.
Instead, it led to a lot of dubious cross-country correlations presented as causal evidence, and broad statements about the causes of growth (“ institutions,” “ ideas,” “ human capital ”) that might be correct, but didn’t translate into sharp policy recommendations. Moreover, developing countries have high internal trade costs(according to data from Ethiopia and Nigeria), both because of poor infrastructure and because market power in the transportation sector drives up freight rates (as we see in Colombia). When India built the Golden Quadrilateral, a national highway network connecting major economic, industrial, and agricultural centers across the country, it increased competition and boosted the market share of productive firms.
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