What Capital Is Missing in Developing Countries?

Abstract

What capital is missing in developing countries? We put forward “managerial capital,” which is distinct from human capital, as a key missing form of capital in developing countries. And it has also been curiously missing in the research on growth and development. We argue in this paper that lack of managerial capital has broad implications for firm growth as well as for the effectiveness of other input factors. A large literature in development economics aims to understand the impediments to firm growth, particularly in small and medium enterprises. Standard growth theories have explored the importance of input factors such as capital and labor in the production function of firms and countries. At the micro level, empirical studies such as Suresh de Mel, David McKenzie and Christopher Woodruff (2008), Abhijit Banerjee et al. (2009), and Dean Karlan and Jonathan Zinman (2009) have estimated the impact of access to finance for capital constrained microenterprises (see Karlan and Jonathan Morduch, 2009, for a review). At the macro level, papers by Robert King and Ross Levine (1993), Raghuram Rajan and Luigi Zingales (1998), and Marianne Bertrand, Antoinette Schoar, and David Thesmar (2007) suggest the importance of the financial system for economic growth.