Capability morphology and firm growth in middle-income economies: evidence from Kosovo’s manufacturing sector

This paper examines how internal capability structures drive firm performance among manufacturing firms in Kosovo. Using Partial Least Squares Structural Equation Modelling (PLS-SEM) on survey data from 101 firms, we show that production, organisational, and management capabilities form a layered morphology crucial to firm growth. Contrary to conventional assumptions, investments in machinery and equipment do not directly improve performance unless embedded within broader capability development. The findings highlight the primacy of absorptive learning, organisational adaptation, and structured management practices in shaping firm success in post-socialist and emerging economies. These results offer theoretical and practical insights into the capability-building strategies necessary for sustainable industrial upgrading.