Effects of Economic Policy on Firm Performance in Developed and Developing Countries

Abstract

This paper analyzes the effects of economic policy on firm performance in developed and developing countries, using a sample of firms classified by turnover. The methodology refers to the estimation of the dynamic panel fixed effects model. The results show that the priority economic policy tools based on price, balance of payments and employment control do not influence firm performance. However, debt increases the performance of firms in Africa. In high-income countries and China, it is savings and exchange rate policies that have a positive effect on firm performance. It is recommended that policymakers in Africa adopt a debt policy based on borrowing in compliance with ceilings and concessional interest rates so as not to increase debt service and suffocate the government’s cash flow. In developed countries, the savings policy must be maintained at the same pace as the mobilization of savings to meet the needs of growth sectors. Exchange rate policy must be able to absorb shocks and always adapt to the market.