Why Do African Firms Underinvest in Management Training? Experimental Evidence from Middle and Large Ethiopian Firms

There is substantial and growing evidence that firms in developing countries are poorly managed. In many firms, managers often do not keep well-organised inventories, set up incentive systems to increase worker effort, or analyse the firm’s data to improve production processes. Good managerial practices like these are key for firm productivity and their scarcity puts developing countries at a substantial disadvantage. There are a multitude of reasons for the shortage of managerial skills and good management practises. Distortive market regulation, lack of competition, credit constraint, information scarcity and the prevalence of family firms are often cited as key reasons for the ubiquity of poor management practises in developing countries. This research focuses on a less well studied factor that may reduce firms’ adoption of good management practises - does competition affect firm decision to invest in management training program?

Abebe et al. will conduct an RCT in Ethiopia to test whether firms’ demand for training is influenced by the level of competition that they face in the market. In other words, the study will test whether firm managers are more likely to invest in management training when they perceive their competitors also acquire such training programs. In the proposed experiment, a randomly selected set of firms will be presented with an intervention that makes market competition salient. The control group will be treated with a placebo intervention with content that does not relate to competition. Both groups will then be shown a trailer of a video containing training on various aspects of management. Firm managers will be given an invitation letter that contains a dedicated phone number that they can use to request the training materials and in-person consultations with a professional trainer. Differential rates of take-up between treatment and control would indicate the influence of competition on management quality.

Encouraging the wider training of managers in firms to improve productivity has potentially important implications for industrial policy in Ethiopia as well as other developing countries. Government officials estimate that the country needs about one million new jobs per year to incorporate young workers into the labour market. A vibrant, well-managed private sector that can generate high productivity employment is a key asset to meet this challenge. In Ethiopia, the research team has links with key policymakers who can apply the evidence generated by the study to have an impact on both industrial extension policy and the labour policy.


Girum Abebe

World Bank

Stefano Caria

University of Warwick

Pascaline Dupas

Stanford University

Marcel Fafchamps

University of Oxford

Tigabu Degu Getahun

Policy Studies Institute