# **5. Conclusions and Further Work**

Efficiency in conversion of inputs to outputs is productivity. At the heart of it, productivity is a residual, a measure of our ignorance. A large literature is available on microeconomic foundations of productivity and its variation across firms, industries and countries. These studies focus on cases of both developed and developing countries.<sup>5</sup> The main findings of this study include: (i) confirmation of TFP at firm, industry and national levels, but TFP tapers off at each level of aggregation implying that there is less than one‐to‐one relationship between micro‐efficiency, sector growth, and macro growth; (ii) capital accumulation is more important at macro level than micro level; (iii) productivity at micro levels is driven by research and development, capacity utilization rate, adoption of foreign technology (all of which involve management decisions), and is negatively related to corruption and instability, tax and financial regulations; and (iii) confirmation of lower contribution of TFP to output growth in developing countries than in developed economies. Management decisions are involved in a lot of day‐to‐ day operations at the firm level and therefore management is an unmeasured input.

In developing countries, at the firm level, there is a need to understand the contribution of quality of inputs (management quality, education and labor quality, training, experience of workers, use of computers at work) and also the role of external agglomeration (e.g. location in a booming city, competitive pressures from new firms, trade competition and regulations). One of the major remaining issues in the literature is a comparative study of productivity across developing countries at different layers of aggregation in a long time period, and the understanding of the possible determinants of productivity, especially policy changes, in this harmonized framework. Further work could aim at closing this gap in the literature. There is a need to study the stylized facts of productivity at three different levels of aggregation (firm level, industry level, and national level) across four developing countries (Brazil, Chile, Colombia, and India). It is important to undertake such a study with a long time series data so that impact lags of different factors affecting productivity can be understood and tracked better.<sup>6</sup> Some comparative studies of micro‐level productivity across developing countries are already available in the literature (for example, Bartelsman, Haltiwanger, and Scarpetta (2008)), but generally they use panels of firms with short time dimensions, and do not necessarily study the possible factors in determining productivity, specifically the impacts of policy changes.<sup>7</sup>

> 5 An extensive literature review follows in the next section.

> 6 As pointed out by Tybout (2000), it is important to track individual firms over long enough periods to be able to capture impact lags of, especially, spillovers.

> 7 Arnold, Nicolette, and Scarpetta (2008) focus on the policy implications of productivity across countries, but they focus on developed OECD countries in their study.

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