Factors that enable and constrain the growth of firms : the case of Kosovo

Sahiti, Fadil (2015) Factors that enable and constrain the growth of firms : the case of Kosovo. PhD thesis, Birkbeck, University of London.

Abstract

This thesis provides theoretically grounded new evidence on the factors that enable and constrain the growth of firms in Kosovo. The investigation is carried out by employing diverse sets of data, theoretical frameworks, and methodological approaches. It is built upon four main dimensions. The first dimension explores whether firm dynamics has any impact on the growth of firms in the economy of Kosovo. The object of analysis is the dynamics of incumbent firms; newly born firms; firms that exited from the market during the last four years, and characteristics and patterns of firm survival. The findings indicate that the economy of Kosovo is characterised by a very low level of firm dynamics. The results suggest that this economy is very slow, in which the impact of the “creative destruction” process is less prominent, and as a result it has less impact on the growth of firms. The second dimension investigates internal factors that differentiate business performance of firms in Kosovo’s economy. The investigation process is carried out by combining two theoretical frameworks: the resource-based theory of the firm and the managerial practices approach. The purpose was to find out whether resources (inputs), managerial practices and organisational capabilities have any effect on the performance variability of firms. Findings indicate that managerial practices play a crucial role in the performance variability and seem to be equivalent to production capabilities. Organisational capabilities also appear to be differentiating factors to the performance variability, but they are more truncated. The third dimension addresses the impact of business environment on the growth of firms in Kosovo. The theoretical perspective used is growth diagnostics, which provides a flexible framework to analyse business environment constraints, by taking full account of a country’s specific circumstances. The findings show that the business environment in Kosovo provides little incentives for firm growth. Further, empirical evidence shows that the business environment in Kosovo is characterised by low appropriability, with a high cost of capital, and in which complementary factors in the form of human capital are scarce. The fourth dimension uses the theory of social conditions of innovative enterprise to investigate factors that enable or constrain the firm innovation in the Kosovo’s economy. Some of the variables used in the social conditions methodology overlap with the growth diagnostics and with resource-based theory and managerial practices approach. But at the same time these variables are not identical factors. By using this theoretical framework, this study looks at social conditions which serve as the bedrock for the emergence of innovative firms as one of the main drivers of economic growth. Findings show that effects of social conditions are vital and as such should be accounted for when analysing business factors related to the growth of firms. Drawing on the results obtained from the analysis, this study argues that growth of firms is not just a macro or a micro issue, but the growth derives from the interaction of both macro and micro factors. This is why the investigation process is carried out by integrating different perspectives to understand the macro and micro factors and how they affect the growth of firms. Different frameworks are used to improve (illuminate) our understanding of these macro and micro interactions in relation to the growth of firms in less developed economies such as the economy of Kosovo.

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