Summary

“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? We review the evidence on constraints to growth of small and medium enterprises. We first examine evidence on constraints to capital and skilled labor, firms’ primary inputs to production. We then consider factors that affect the efficiency with which firms are able to transform inputs into outputs, focusing on managerial talent. Finally, we look at the importance of linking firms to markets and the role of demand in generating firm growth. We conclude with a proposal for a research agenda built around important but unanswered questions.”