Particularly among developing economies, once micro firms (including sole proprietorships) are included, the predominance of the smallest firms as the source of formal, private sector employment increases (World Bank 2014). However, in terms of employment growth — that is the expansion of the overall stock of employment — the evidence has been mixed. Particularly, while some have found (Ayyagari et al 2014, for example) that young and small firms are the driving force of growth, others have argued that it is the specific dynamism of young, start-up firms that accounts for this growth (Haltiwanger et al 2013).

Parallel to this has been a focus on the lifecycle of firms. Potential entrepreneurs must assess their competition and understand their relative productivity after competing in the market (Lucas 1978; Melitz 2003); if they find themselves to be profitable in these markets, they will continue operations — including the requisite investments needed — if not, they will exit those same markets ( _Ibid_ ; Olley Pakes 1996). This is the modeled mechanism in markets that are competitive and allocatively efficient, under which both revenue and employment shares will flow to more productive firms (Olley and Pakes 1996; Melitz and Polanec 2012). Where those conditions are less ideal, investment among incumbents can be discouraged, average firm size will be dampened downward, and new entrants are less dynamic and productive. The agesize correlation has been widely reported: Hsieh and Klenow (2014) do show stunted lifecycle growth for plants in Mexico and India. Simultaneously, firms may face costs at entry that demand higher initial investment, inducing a higher starting size, which can have lasting effects for firms that are “born large”. Based on a sample of 120 developing countries, Ayyagari et al (2015) find a consistent trend over the lifecycle of firms; however, start size explains the vast majority of variation in current size. Indeed, a specific advantage of using micro-data is to see if these effects are heterogeneous within economies.

A positive correlation between firm size and productivity has been found in developing countries, suggesting the existence of “static” allocative efficiency. Based on the World Bank Enterprise Surveys for developing countries, Ayyagari, Demirgüç-Kunt, and Maksimovic (2015) documented that large firms are typically more productive than small and medium firms.<sup>4</sup> Li and Rama (2013) also find that productivity dispersion and growth prospects vary a lot in developing countries compared to advanced economies, but not as clearly correlated with firm size. Restricting the sample to manufacturing firms from nine SubSaharan African countries, Van Biesebroeck (2005) finds that large firms achieve higher productivity levels and are more likely to survive. In contrast, the commonly found higher growth rates for small firms are not replicated in his African sample, and the distribution of firms changes very little over time. Firms are more likely to have started out large than to have grown. We find that larger firms are more productive, but that the positive relationship between size and productivity is driven by large firms, consistently with the studies above.

> 4 It has to be noted that WB ES may not include micro firms (1-4 employees); in some countries, including Ghana, registered micro firms have also been sampled.

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