The economic performance of business groups in developing countries : the role of absorptive capacity

Abstract

Business groups – legally independent firms tied together in various formal and informal ways – are omnipresent in emerging economies. Research on the economic performance of business groups has so far paid only limited attention to their technological capabilities and absorptive capacity, and mostly presented studies for individual economies rather than cross-country comparative analyses. This thesis presents a cross-country empirical analysis of the economic performance of group affiliated firms, investigating in particular the importance of firm capabilities and absorptive capacity – e.g. human capital, ICT usage, access to finance, international trade, technology and innovation – for the productivity performance of firms in developing countries. The empirical analysis is based on a large dataset, the World Bank Enterprise Survey, and the econometric analysis focuses on a sample of around 30 000 manufacturing firms in 85 developing economies. The results reveal that group affiliation enhances economic performance, and that the superior performance of group-affiliated firms vis-à-vis independent enterprises is related to their greater capabilities in terms of human capital, access to finance, as well as technology and innovation.