Dispute resolution and microenterprise growth in a 'fragile' state: Evidence from Somalia

How can entrepreneurs enforce contracts and deal with disputes in a failed state, such as Somalia? What kinds of informal institutions emerge in such a context and how effective are they in enabling growth of small-scale businesses? Can the establishment of saving and loan associations for women improve women’s access to these institutions and their business outcomes? These are the key research questions that motivate this project. Institutions that protect property rights and enforce contracts are essential for firm growth. In contexts where the formal institutions do not function well, informal institutions play a key role as means of resolving disputes and enforcing contracts; and previous literature has found evidence of this. However, there is limited evidence on how individuals and firms resolve disputes during conflict or in post-conflict environments, when formal institutions are at near-complete failure and access to informal mediation channels may be limited. In this project, Sulaiman, Gulesci and La Ferrara are interested in studying the ways in which enterprises are able to manage their business (e.g. enforce contracts or resolve disputes) in such a context and the kinds of (formal and informal) institutions they use. The authors are currently collaborating with a consortium of Save the Children, CARE International and International Rescue Committee in Somalia to evaluate an intervention that aims to economically and socially empower women, through the establishment of saving and loan groups restricted to women. Previous literature has shown that these types of group-based organizations can be effective ways of increasing the profitability of small businesses and improving women’s status and this motivates the intervention of the project.

The authors will collect original data from 3790 households based in 110 communities in Somaliland, Puntland and south-central regions of Somalia, focusing on their business outcomes and their access to dispute-resolution institutions. The data will provide unique evidence on how microenterprises in Somalia, a context with high conflict and a failed state, manage their business affairs. The data will be exploited for three main purposes. First, the data will provide information on the types of formal and informal institutions micro-entrepreneurs use to resolve disputes in Somalia. Second, the authors will explore variation in access to dispute-resolution institutions to study their effects on business outcomes. Their hypothesis is that women, ethnic minorities and individuals who have migrated recently into the community are likely to have lower access to these institutions. Further, in regions where ongoing conflict and insecurity are rampant, all institutions, including the dispute resolution committees are likely be less functional. Third, for the subset of communities that are part of the experimental sample (50 communities) the authors will exploit the experimental variation in the introduction of saving and loan groups to test if they have any impact on women vs. men’s access to dispute-resolution committees, business creation and profits.

This project has the potential to ultimately motivate and guide the design of an intervention by the project's partners, NGO’s Save the Children and CARE International, as well as other stakeholders. Improving the functioning of courts and women’s access to them is a key policy goal for the UN and the Somali government. As such, the findings are expected to be of interest to stakeholders across Somalia.

Authors

Munshi Sulaiman

Save the Children

Eliana La Ferrara

Bocconi University