Session at the Firms, Trade and Development Conference 2025
What factors shape firm performance? Insights from the Firms, Trade, and Development Conference 2025
From hiring practices and gender constraints to trade shocks, technology, and urban geography, the internal and external factors impacting firms are far from uniform. Evidence presented at the Firms, Trade, and Development Conference 2025 shows how these frictions interact to influence productivity, worker outcomes, and inclusive growth across developing economies.
How do decisions inside firms – from who is hired to how managers respond to competition and technology – shape productivity and inclusive growth in low and middle-income countries?
The Firms, Trade, and Development Conference 2025, co-hosted by the Yale Economic Growth Centre (EGC) and the International Growth Centre (IGC) at Yale University on 24 and 25 October 2025, brought together new research answering these questions.
Across two days, participants presented evidence from South Asia, Africa, and other regions on how firm-level choices interact with wider forces such as trade, urbanisation, and the spread of generative AI. Discussions repeatedly touched on a central theme: what happens inside firms has major consequences for economic growth and who benefits from it.
Frictions inside firms: Hiring, incentives, and management
A central question at the conference was identifying what frictions within organisations prevent firms from growing, and conversely, what changes can increase productivity. The presentations highlighted that small changes in internal rules regarding referrals or management structures can have tremendous impacts.
Results from referral-based hiring experiments conducted at a large Indian manufacturing firm by Kartik Srivastava (Harvard University) revealed that reallocating referral opportunities from majority caste incumbents to lower caste workers increased the share of lower caste hires, reduced churn, and raised output – all without displacing upper caste workers.
Kartik Srivastava presenting at the FTD conference 2025
While supervisors were initially worried that more diverse teams would be harder to manage, after seeing improvements in team performance, they continued to refer lower caste workers. The study showed that small changes in recruitment rules can improve both equity and productivity.
The structure of ownership and management is also critical for firm performance. Ananya Kotia (London School of Economics) studied the relationship between family ownership, firm performance, and competition induced by trade. Stronger competition faced by Indian firms exposed to trade liberalisation encouraged many family-run firms to bring in professional managers.
Family members were also more likely to leave senior roles, and firms that professionalised saw large productivity gains. Within-firm changes in governance accounted for a sizable share of the overall productivity gains from trade. The findings suggested that external competition can push firms away from kin-based towards merit-based structures.
Gender constraints in hiring: Costs and unintended policy effects
The internal dynamics of the firm are also heavily influenced by gender. Several papers returned to this theme, investigating why employers hire so few women and how policy interventions play out in practice. Zunia Saif Tirmazee (Lahore School of Economics) examined why employers in Punjab's garment factories hire so few women, even though most say women are at least as capable as men in production roles.
The study identified recurring economic costs, such as safe transport and facilities, rather than social norms, as the binding constraint, suggesting that targeted support to cover these costs could unlock gains in female labour force participation.
However, policies designed to support women can have complex unintended consequences. Garima Sharma (Northwestern University) analysed the effects of the 2017 expansion of paid maternity leave in India from 12 to 26 weeks. Over the course of four years, female employment fell by around 10%, with the largest effects observed among younger women, while male employment experienced small positive effects. These findings echo concerns that when firms bear most of the cost of generous parental leave mandates, they may respond by hiring fewer women of childbearing age. The study raises important questions about the design and potential unintended consequences of family-friendly policies.
External factors: Technology, trade, and global shocks
A second major theme at the conference centred on how external factors and frictions, such as technology diffusion, trade barriers, and global supply chains, affect firm performance.
The adoption of new technology often relies heavily on local networks and direct support. Eric Verhoogen (Columbia University) and Ritam Chaurey (Johns Hopkins SAIS) examined how small manufacturing firms in Dhaka's leather sector learn about and adopt energy-efficient servo motors. They found that offering firms either information about the technology or information plus installation support (especially the latter) induced firms to purchase a motor.
For firms that were not directly offered information or support, adoption was more likely when a nearby firm received intensive support, which pointed to strong local learning spillovers. Notably, these spillover effects were larger than the effects of information alone. The research highlighted the value of geographic density, firm-to-firm interactions, and firsthand exposure in the adoption of new technologies.
While local spillover effects can drive adoption, the rules of global trade can sometimes hinder the flow of knowledge. Gustavo de Souza (Federal Reserve Bank of Chicago) examined how tariffs affect international technology diffusion, using Brazilian trade liberalisation in the 1990s.
As tariffs fell, firms relied more on imported goods and less on formal technology transfer agreements, which reduced the spread of production know-how across firms. This challenges the idea that more trade automatically leads to more knowledge diffusion, and highlights the need to consider the role of technology transfers when designing trade policy.
In his keynote address, Dr Indermit Gill (World Bank) expanded on these global trade dynamics, highlighting how imbalances, particularly between China and the US, have reshaped the policy landscape. He argued that while trade liberalisation has brought significant benefits to developing economies over the past decades, the current system faces challenges around reciprocity, currency practices, and non-tariff measures.
For smaller developing economies, maintaining access to advanced economy markets remains critical, and bilateral liberalisation should be extended multilaterally to maximise gains in employment and output.
Connecting global markets: Information frictions, supply chains, and AI
Firms also face significant frictions when trying to connect with global partners. Edward Wiles (Harvard University) studied how information problems limit access to foreign suppliers for garment retailers in Dakar.
Drawing on a field experiment linking Senegalese retailers to Turkish suppliers, and data from WhatsApp groups, the study found that making supplier quality more transparent on digital platforms relaxed some of the frictions related to search costs and contract enforcement. However, relationships and reputation remained central for firms that navigate international supply chains.
Looking to the future of global work and how generative AI is reshaping these external connections, Maggie Chen (George Washington University) presented evidence on how the spread of AI is affecting international outsourcing on a large online marketplace for digital services.
Maggie Chen presenting at the Firms, Trade and Development Conference
High-frequency data on tasks across many skills and more than 100 countries revealed a decline in outsourcing to workers in developing countries for tasks where AI can substitute for human labour. The results suggest that the next wave of automation may impact exactly those tradable service jobs that have been hypothesised as a new engine of growth for many low and middle-income countries.
Geography matters for inclusive growth
Finally, the discussion expanded to the spatial dimension, looking at how the location of firms and workers within cities affects economic opportunities. Yuhei Miyauchi (Boston University) presented evidence on the spatial distribution of income within 26 low- and middle-income cities.
Poorer residents often live far from city centres, in locations with weak job access – these patterns are linked to constraints in housing and transport. For policymakers concerned with inclusive urban growth, the findings pointed to the importance of transport connectivity and land-use policy.
Policy priorities in a shifting global landscape
During the policy panel, moderated by Namrata Kala (MIT), IGC Country Economists Ashfaqul Chowdhury (Bangladesh), Tewodros Makonnen Gebrewolde (Ethiopia), and Abou Bakarr Kamara (Sierra Leone) reflected on how global policy shifts are felt in their countries. They highlighted challenges linked to export promotion, foreign exchange constraints, and climate-related shocks, and stressed the value of demand-driven research partnerships and evidence presented in formats that are usable for policymakers who are balancing growth, resilience, and inclusion.
What can policymakers take away from this evidence?
Across two days, the conference kept returning to a common theme: what happens inside small and medium firms has important implications for economy-wide productivity and equity. Papers on referral hiring, gender related costs and maternity leave showed how firm-level decisions can reinforce or reduce labour market inequalities. Research on management in family firms, technology adoption and AI-driven outsourcing showed that external shocks can push firms to reorganise, but with potentially uneven effects across tasks, workers, and locations.
For policymakers in low and middle-income countries, two points stand out. First, there is room to improve firm outcomes by designing policies that support more inclusive and efficient decisions inside firms, whether through easing the costs of hiring women, helping firms adopt new technologies, or supporting productive restructuring.
Second, it will be crucial to understand how changes in global trade, geopolitics, and technology interact with firm behaviour, in order to build firms and labour markets that are productive, resilient, and inclusive.
The IGC and EGC look forward to continuing this conversation at future editions of the Firms, Trade, and Development Conference and to deepening collaborations that can translate research into policy action.