Research Theme 1: Firms, Frictions and Spillovers, and Industrial Policy

Theme 1 encompasses both a micro literature that focuses on barriers to firm growth and productivity, and an emerging macro literature that emphasises productivity spillovers across firms and sectors.


To date, the micro literature has tended to focus on the role of policy distortions, financial frictions, and managerial incentives that together discourage the efficient allocation of productive resources. While there is an emerging literature investigating the macro effects of firm-level frictions and distortions, little work to date has focused on the poorest countries, including those in sub-Saharan Africa.

This theme will support research focused on expanding this micro and macro literature, including but not limited to research on:

  • Productivity diffusion across firms and industries. A new macro-focused body of literature emphasises the linkages and spillovers between firms and industries that arise through the input-output linkages of economies, the flows of workers through labour markets, and the exchange of ideas.
  • Formality and informality, and how this distinction, and the desire to avoid taxes and regulation, impacts firm growth, inter-firm linkages, and productivity.
  • Industrial and other government policy. While industrial policy has been common in many high growth economies, formal theoretical analysis and empirical assessment of the potential role for industrial policy and other government policy in either eliminating sources of frictions, offsetting the harmful impacts of distortions, responding to positive and negative externalities, or offsetting the impacts of frictions through policy in a second-best sense has been understudied.

Theme Leaders

Theme 1 is led by Francisco Buera (Professor of Economics at Washington University in St. Louis) and Ezra Oberfield (Assistant Professor of Economics at Princeton University).

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