NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Missing "Missing Middle"

Chang-Tai Hsieh, Benjamin A. Olken

NBER Working Paper No. 19966
Issued in March 2014
NBER Program(s):   DEV   EFG   PE   PR

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 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.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19966

Published: Chang-Tai Hsieh & Benjamin A. Olken, 2014. "The Missing "Missing Middle"," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 89-108, Summer. citation courtesy of

Users who downloaded this paper also downloaded these:
La Porta and Shleifer w20205 Informality and Development
Pinkovskiy and Sala-i-Martin w19831 Lights, Camera,... Income!: Estimating Poverty Using National Accounts, Survey Means, and Lights
Acemoglu, Laibson, and List w19851 Equalizing Superstars: The Internet and the Democratization of Education
Murnane and Ganimian w20284 Improving Educational Outcomes in Developing Countries: Lessons from Rigorous Evaluations
Angelucci, Karlan, and Zinman w19827 Microcredit Impacts: Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us