Private Enterprise Development in Low Income Countries (PEDL) is a joint research initiative of the Centre for Economic Policy Research (CEPR) and the Foreign, Commonwealth & Development Office (FCDO). Over the period 2011-23 it will pursue a research agenda focusing on private-sector development in low-income countries (LICs). The Initiative is motivated by the need to better understand what determines the strength of market forces driving efficiency in these countries. Existing research suggests that the private sector in these countries faces a multitude of constraints that act upon each other. For example, the strategic interaction of firms with market power will be affected by the regulatory regime governing both new entrants and incumbent firms. What is needed is research that allows us to understand how these constraints interact.
- Market frictions, management and organisations - Well-functioning markets provide discipline for entrepreneurs, managers and investors. Competition increases incentives for efficiency and for innovation. But markets in LICs often do not function well. Weak institutions, missing information, and concentrated markets limit competitive pressure. Firms are often unwilling or unable to switch trading partners, undermining incentives. Projects in this area might explore market micro-structure, organisation of production within firms. Projects that create new data useful to other researchers are especially encouraged.
- Trade and macro models – agglomeration and spatial location of firms - Few countries have enjoyed long periods of sustained growth without an active foreign trade sector. Evidence suggests that exporters play a role in aggregate growth which is disproportionate to their share in output. First, exporters are a conduit for knowledge transfers that may (to varying degrees) spill over to the rest of the economy. Because export markets are highly competitive they provide very strong incentives for productivity improvements; because foreign consumers often have a higher willingness to pay for quality, exporters also face stronger incentives to upgrade both capital and labour used in production. The focus on foreign trade overlaps in important ways with a focus on location of firms are workers more generally.
- High growth entrepreneurship - A majority of the labour force in LICs works in firms with fewer than five workers. But we know from both cross-country and time-series evidence that the process of development is associated with a decrease in the share of the labour force that is self-employed and an increase in average firm size. Most small scale entrepreneurs in LICs are motivated by subsistence, with little interest in or prospect for sustained growth. Policies that help raise income of subsistence entrepreneurs will not be appropriate for more dynamic entrepreneurs. We need both tools for selecting entrepreneurs with more potential for growth and policies designed to help those entrepreneurs grow.
- Social compliance and the environment - Creation of wage jobs is an important outcome of a healthy private sector. But creation of desirable wage jobs should be the goal: jobs that are fairly remunerated with safe working conditions. There is evidence that export-oriented firms pay a wage premium in many countries. But by itself, the wage premium may not make factory jobs desirable. Turnover rates are often very high, especially among new factory workers. In export sectors, we need to understand how demands for social compliance are reflected through brands to local producers in LICs. A further question is how social compliance interacts with productivity. Moreover, certain types of workers – women and minorities, for example – often face a more hostile working environment.
PEDL will give particular encouragement to proposals which address cross-cutting issues such as:
Over the course of its lifetime, PEDL will undertake a range of other activities aimed at building a research community in private enterprise development in low-income countries, such as research workshops, training workshops, open events, a working paper series and a dedicated policy website.
To read more about PEDL, please read the Research Strategy.
