information about job vacancies to registered job seekers and/or information about job seekers to firms, as well as organizing job fairs.

_Capital (Assets and finance)._ Using firm-level data from 107 countries, Aterido et al. (2007) show that improved access to finance has a significant and positive effect on firm growth, especially for small-size firms. Restricted access to capital markets limits productivity growth, and for several reasons these constraints are relatively high for smaller firms in developing countries (Kersten et al., 2017). _First_ , banks are relatively less willing to lend to small firms because of risks of default, as well as the costs of appraisal, monitoring and liquidizing assets in case of default. _Second_ , developing countries suffer from larger market failures relative to advanced economies, given their weak financial institutions. They may lack information about credit risks and/or operate within a weak legal framework for assets collateralization. Firm financial support includes direct interventions, such as grants, matching grants, subsidized loans, equity financing, vouchers and public procurement, as well as indirect instruments, such as fiscal incentives and loan guarantees. All these market-based instruments induce firms to undertake activities they would otherwise not do, such as technological upgrading, management improvement, market extension (Grover, Medvedev and Olafsen, 2019).

_Intermediate inputs._ A country’s competitive advantage in a given industry is also determined by the presence of networks of suppliers, buyers and competitors (Porter, 1990). For example, improved access to foreign intermediate inputs enhanced firm performance in China and India (Imbruno, 2015; Goldberg et al., 2010). Services policy reforms in India during the period 1993-2005 had a positive effect on manufacturing firms’ productivity (Arnold et al., 2014).<sup>5</sup> In developing countries, large firms, including multinationals, find that local suppliers have poor capabilities in producing high-quality intermediate inputs, due to lack of information, experience, technology, and human and financial resources (Arráiz et al., 2013). In this regard, (large) firms do not have the appropriate incentive to invest in developing suppliers’ capability given that they cannot exclusively benefit from their improvements. At the same time, (small) suppliers also have little incentives to incur costly investments aimed at technology/quality upgrading to better fit their customers’ needs, because they are uncertain about their profitability. Therefore, there are several market failures that can be summarized as information asymmetry, moral hazard, coordination failures, externalities and spillovers. Policy makers can help address these constraints through appropriate interventions to improve firm capabilities rather than the local content regulations that force producers to purchase a minimum percentage of intermediate inputs from domestic suppliers. More

> 5 Trade in intermediation services played an important role in explaining productivity gains of manufacturing firms in China and Romania (Defever et al., 2020; Javorcik and Li, 2013).

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