Addressing constraints to small and growing businesses

Salaried wage jobs are the distinguishing feature separating the middle class from the poor in developing countries (Banerjee and Duflo 2008). Where do salaried wage jobs come from, and how can small and medium-sized firms create more of them? This synthesis paper reviews the evidence on constraints to growth of small and medium enterprises. It first examines evidence on constraints to capital and skilled labour, firms’ primary inputs to production. It then consider factors that affect the efficiency with which firms are able to transform inputs into outputs, focusing on managerial talent. Finally, it looks at the importance of linking firms to markets and the role of demand in generating firm growth. It concludes with a proposal for a research agenda built around important but unanswered questions.