Convergence to the managerial frontier

Abstract

Using detailed survey data on management practices from the World Management Survey, this paper uses recent advances in unconditional quantile analysis to study the changes in the within country distribution of management quality associated with country convergence to the managerial frontier. It then decomposes the contribution of potential explanatory factors to the distributional changes. The United States emerges as the frontier country because its best firms are far better than those of its close competitors. Part of the process of convergence to the frontier across the development process represents a trimming of the left tail, much is movement of the central mass and, for rich countries and many poor countries, it is actually the best firms that lag the frontier benchmark. Among potential explanatory variables that may drive convergence, ownership and human capital appear most important. These variables lose explanatory power as firm and average country management quality rises. Hence, once in the advanced country range, the factors that improve management quality are less easy to document and hence influence.