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The missing middle in developing countries revisited

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  • Kunal Dasgupta

Abstract

Purpose - The purpose of this paper is to develop a dynamic model to understand the evolution of the firm size distribution in developing countries. Design/methodology/approach - Evidence points to the existence of a “missing middle” in the size distribution of firms in developing countries. In the model presented in this paper, the bimodality arises because of agents optimally selecting into a traditional and a modern sector. The key parameter in this model is the mean level of knowledge in the economy. Findings - For a low mean, the two sectors co-exist. As the mean rises, the size distribution converges from a bimodal to an unimodal distribution. Originality/value - Unlike existing explanations, this model does not rely on frictions to generate the bimodality in size distribution.

Suggested Citation

  • Kunal Dasgupta, 2016. "The missing middle in developing countries revisited," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 9(1), pages 32-52, April.
    • Handle: RePEc:eme:igdrpp:v:9:y:2016:i:1:p:32-52
    DOI: 10.1108/IGDR-11-2015-0048
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    Citations

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    Cited by:

    1. Manuel Garcia-Santana & Roberto Ramos, 2012. "Dissecting the Size Distribution of Establishments Across Countries," Working Papers wp2012_1204, CEMFI.
    2. Sunandan Ghosh & Vinoj Abraham, 2021. "The Case of the ‘Missing Middle’ in the Indian Manufacturing Sector: A Firm Level Analysis," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(1), pages 161-179, March.
    3. Manuel García-Santana, 2013. "Foreign Firms, Distribution of Income, and the Welfare of Developing Countries," 2013 Meeting Papers 1044, Society for Economic Dynamics.

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