PEDL Research Notes

The primary objective of this project, by Khwaja, Das and Andrabi (2019) is to understand what factors constrain growth and innovation in Low-Cost Private Schools (LCPS) with an emphasis on alleviating financial and educational quality in enhancing constraints. Both financial products and educational support services (ESS) products were specifically designed (or re-designed) for this project, and introduced into a previously untapped market. Key findings include: 1) there is significant demand for financing from LCPS; 2) it is profitable and relatively low-risk to lend to schools; 3) there is significant demand for quality-enhancing ESS products and services from LCPS, but the market for these is thin and most LCPS do not have access to them.
This study (Carrillo, Donaldson, Pomeranz and Singhal, 2019) uses lotteries for public procurement contracts in Ecuador to understand the role that public procurement may play in fostering economic growth in developing economies. Their results indicate that public procurement may be used to infuse targeted sectors of domestic economies with new revenue streams, though this may not be sufficient for generating sustainable, long-term growth.
Wan and Chandrasekhar (2019) study how the quality of decision making, in this case by credit officers, depends on (1) whether decisions are made at the group or individual level, (2) whether soft information is available beyond hard information, and (3) the incentive structure that officers face. They find that individual credit officers are 28% less likely to assess applications correctly when soft information (e.g. caste of applicant) is provided. Further, biased individuals – as measured by an IAT – make worse decisions, particularly when their caste differs from the applicant’s. However, the authors find that when evaluators are paired, the quality of decision making improves, especially when pairs are mixed-caste.
A commonly held and highly intuitive view is that intensified competition will improve the allocation of resources in an economy, by shifting resources to more productive firms. When firms are financially constrained however, increased competition undermines firms’ profitability, and thereby their capacity to accumulate capital through internally financed investment. This way, competition may not improve resource misallocation after all.
Schoenholzer, Kelley, Lane and Wagacha (2018) provide firms a new technology that delivers real-time information to the owner of the vehicle about the driver’s productivity and safety. They find that owners use this information to change their management of drivers and re-optimize their contracts. Drivers respond to these changes by increasing their labour supply by twelve percent and taking better care of the vehicle. Overall, these changes lead to an increase in firm profitability and stimulate firm growth, thereby suggesting that improved monitoring technologies can help overcome important frictions faced by firms in developing countries.
This study measures the impact of a business training program for women in Kenya, finding that training increases the profits, sales, mental health, and subjective well-being of women. Moreover, this growth comes without significant negative spillovers on other women operating in the same markets, so that overall market size grows.
This study finds that wage subsidy policies that allow firms to choose who to hire and how to spend the subsidy lead to firm expansion and the creation of net employment. Instead, tying the provision of wage subsidies to hiring and sharing the monetary transfer with a specific worker leads firms to replace existing workers with the new hires.
This study finds that vocational training and apprenticeships both raise employment of poor Ugandan youth, but vocational training provides general skills that foster mobility and result in higher earnings.
What happens to the economic performance of a region contaminated by explosive remnants of war (unexploded ordnance and landmines) when it is finally cleared? Which regions benefit the most? And what are the aggregate country-wide effects of landmine clearance? Our study is the first one to offer a systematic answer to these questions.
Previous studies of peer-to-peer technology diffusion have primarily focused on the decision of potential adopters. Often equally relevant for observed diffusion is the willingness of incumbent adopters to actively share technology. In a real network of garment making firm owners in Ghana, we randomly seed training in a newly-developed weaving technique, and technique-specific, time-limited, one-time contracts. Contract offers increase both learning by potential adopters and sharing by incumbent adopters. Further analysis exploiting random order size and random order timing suggests that the rival nature of contract offers disincentivized sharing by potential teachers yet to receive a contract.
The timely enforcement of supplier contracts by courts of justice is an important determinant of firms’ organizational structure and overall productivity.
Several field experiments find positive returns to grants for male and not female micro- entrepreneurs. But these analyses overlook that female entrepreneurs often reside with a male business owner. Using data from randomized trials in India, Sri Lanka and Ghana, we show that the gender gap in microenterprise performance is not due to a gap in aptitude. Instead, low average returns of female-run enterprises reflects the fact that women’s capital is typically invested into their husband’s enterprise. Household-level income gains are equivalent regardless of the grant or loan recipient’s gender.
Firms in poor countries are much smaller than firms in rich countries, with the modal firm being a single person, the owner. Meanwhile, youth unemployment and underemployment are widespread. Understanding whether labour market frictions co-exist with capital and managerial skill constraints to limit firm growth is thus quite important. This project studies a program that randomly placed unemployed young people to work as apprentices with small firms in Ghana. Firms that were offered apprentices by the program experienced increases in both firm size and profits over the two years of our study window. These effects vary as a function of worker cognitive ability (unobserved by the firm owner), highlighting the potential role of screening in firms’ hiring decisions in our context. This screening interpretation echoes the widespread use of an entry fee mechanism to hire apprentices in our baseline labour market.
We run the first randomised controlled trial to compare microenterprise data from surveys of different frequency – weekly or monthly – and medium – phone or in-person. We show neither the quality of survey data nor the probability of respondents remaining in the panel differ substantially by frequency or medium, though respondents are more likely to miss higher-frequency interviews.
We use new data on credit transactions and formal firms in Brazil to identify the effects of a large-scale expansion in credit for small and medium enterprises.
By exploring the patterns and trends of Kenya’s exports overtime, this project shows the important role of multi-product and multi-destination exporters in the expansion of exports for low income countries.
We study 5 distinct factors of managerial quality that are likely to impact learing by doing within the firm: vocation-specific experience, managerial autonomy, cognitive skills, personality, and demographic relatability to workers. We find that experience predictably impacts all aspects of learning and retention, but so do managerial autonomy and cognitive skills. Personality traits impact learning but not forgetting; while relatability to workers surprisingly shows no impact on productivity. We also find that firms can increase productivity at lower cost by adopting better screening mechanisms in the hiring of new supervisors and training existing supervisors in deficient qualities.
We present novel evidence on short run exit among urban firms in a developing country. Exit rates are high but surprisingly similar to those for small firms in the United States, and vary systematically by age of the firm, number of employees, and industrial sector.
We compile a unique dataset on India’s controversial environmental clearance (EC) process, the system through which large investment projects receive government approval before breaking ground. In the mining sector, we find that EC may be an inefficient tool for environment protection: though the process is more stringent for mines with larger environmental risk, it gives preferential treatment to mines in politically aligned areas, and almost all mines ultimately receive clearance.
Preliminary results indicate that trainees have strong preferences over salary and job locations and their placement officers (who are solely responsible for trainee placements) have poor knowledge of these preferences. Providing placement officers with information on these preferences improves the quality of matches and potentially improves job retention three months later.
Existing theories of democratic reversals emphasize that economic incentives should determine when elites resist democracy. We argue that the capacity to organize coups against democracy is also important, and is shaped by the structure of the social network.
We evaluated two interventions that eased credit constraints in slightly different ways: a multifaceted ‘microfranchising’ programme eased both financial and human capital constraints by providing training and physical capital to recipients, while an unrestricted cash grant of comparable value more directly eased credit constraints. Both interventions led to persistent increases in self-employment and had economically large and statistically significant impacts on income over the medium-term (7 to 10 months after intervention). However, the impacts on income diminished over time.
This novel experiment finds evidence that small-scale lighting solutions can help households living in off-grid rural areas to shift from farm to non-farm livelihoods, thereby helping stimulate the very first steps in the direction of economic transformation of rural communities. However, the experiment does not find evidence indicating that access to light advances the economic empowerment of women.
This randomized controlled trial evaluates a business training programme for women-owned small and medium enterprises in urban Uganda, examining both the direct effects on the management and growth of businesses invited to participate, and the indirect effects on the rest of the community.
A randomized experiment run in partnership with a large agri-business sugar company in Kenya shows that a mobile-based query system can improve the company's performance in the management of the provision of inputs to the company’s cane suppliers and generate positive geographic spillovers. Given the limited sample size, it was not possible to confirm or to rule an effect on sugar cane yields. In another intervention, the company sent test messages with agricultural advice to cane farmers. In contrast to a previous trial, this treatment had no significant impact on cane yields. The research team is currently investigating the potential reasons for the different outcomes in response to the treatment.
We study the impact of Indonesia’s KAPET programme, which provided incentives to firms to locate in specific districts. We find that the programme reduced the tax burdens faced by firms, but these tax reductions did not increase the entry of large, productive firms or generate substantial increases in productivity or value added. Consequently, we do not see sustained increased migration rates or population growth in response to the programme, and overall, KAPET districts did not grow faster after its introduction.
Examining how agglomeration, or clustering, among Indonesian manufacturing firms has changed over the past 30 years, we found that its most robust drivers have been natural resources and supply chain linkages, especially with respect to explaining long-term changes in spatial concentration. We also developed a new approach for estimating productivity spillovers across networks of firms, but we found that spillovers between manufacturers in Indonesia were significantly smaller than what has been observed in other countries.
Microfinance lenders make limited credit offers because of operational challenges of extensive screening and selection process. We study if optimizing a referral protocol can be used to recruit good entrepreneurs and thus increase access to credit.
Movements of the Ethiopian Birr against the USD, the major currency of trade invoicing, matter more for prices and trade volumes than do movements of the Birr against trading partners’ currencies. USD prices and trade volumes change much more for manufacturing firms than for firms in other sectors in the wake of Birr movements against the USD.
Most firms are informal throughout the developing world; and most small and medium enterprises (SMEs) (60-80%) do not register with tax authorities, lowering the tax base. This remains a persistent phenomenon despite the numerous attempts made to encourage registration. While those interventions focused largely on a carrot approach, we tested the effectiveness of a stick intervention. The latter involves threat of fines if caught SME still not registered after a grace period. Our intervention increased the rate of registration, but the overall number of registered firms remained quite small.
Using a randomized experiment, we show that enhancing the benefits of formalization through personalized assistance induces more firms to formalize. However, formalization appears to offer limited benefits to the firms, and the costs of assistance are high, suggesting that such enhanced formalization efforts are unlikely to be cost effective.
What explains differences in productivity in developing countries? Working with the State Bank of Pakistan and the Pakistan Bureau of Statistics, we have conducted what is to date the largest survey of management practices in Punjab, Pakistan, to understand the role of management practices as an important factor in explaining variation in firm productivity.
Using the data enumerated from 501 randomly-sampled micro-entrepreneurs, and several case studies, interviews, and focus groups discussions across three ecological belts in Nepal, this study revealed a significant increase in profit, sales and assets of microenterprises over the period, and identified several entrepreneur-, enterprise-, and environment-related factors determining microenterprise performance in Nepal.
This project evaluated entrepreneurial interest among university undergraduates in Nigeria and the role of compulsory entrepreneurship education in forging this interest. Most undergraduates in Nigeria would like to start their own business but only a handful of them currently do so. Compulsory entrepreneurship education stimulates entrepreneurial interest but does not necessarily reinforce it.
Although hiring temporary workers increases firm productivity in the current period, the short-tenure of such temporary workers preclude the accumulation of firm-specific human capital, resulting in lower future productivity.
This study of misallocation of inputs and output in Indian manufacturing reveals that, although more productive establishments in India tend to produce more output, factors of production are grossly misallocated.
Management score is slightly higher for private hospitals (2.08) than public hospitals (1.94); however, this difference is not statistically significant, meaning that a different sample may show equal management scores between private and public hospitals. Better management practice scores are strongly associated with the performance indicators of the hospitals in Nepal. The result demonstrated that management score is not only associated with total services but also associated with the quality of service delivery.
Based on primary data collected from private enterprises, we show that political connection is practiced in Burkina Faso’s public procurements. Although politically connected enterprises receive more government procurements and pay fewer taxes, they are less productive and hire fewer labourers than other organisations.
A month-long field experiment with full-time Indian manufacturing workers reveals that relative pay comparisons in the workplace have significant effects on worker attendance, effort, and social cohesion. These negative morale effects are completely mitigated when pay differences are clearly justified.
Regular meetings between managers of young Chinese firms substantially improved firm performance. Channels included learning from peers and new supplier-client matches.
An integral part of global supply chains is the selection by international buyers of trading partners in developing countries. However, our understanding of how buyers find a suitable long term supplier is limited. I use unique buyer-seller customs data in a large market in an LDC - the “fast fashion” industry in Bangladesh - to study the formation of those relationships. I show that buyers experiment with different potential partners before settling down in their relationships. Contrary to the standard result in search models, I show that the more heterogeneous the potential partners are, the less the buyers experiment before choosing a trade partner. This mechanism affects not only who trades with whom but also how the gains from trade are split between international buyers and their suppliers in Low Income Countries.
Interest rate caps on loans are unarguably important policy tools in both developed and developing countries. In this project I attempt to empirically test whether this policy tool is effective in Bangladesh. I find significant and persistent increase in credit supply, indicating that the policy helped solving market power of banks and helping to build new borrower-lender relationships.
Developing country entrepreneurs often face family pressure to share income. This pressure, a “kinship tax”, can discourage the most able entrepreneurs from expanding their firms. This project uses evidence from a lab experiment in Kenya to estimate marginal kinship tax rates for individual entrepreneurs, and then estimates how these distortions reduce aggregate output by causing inputs to be misallocated across firms.
Distance between buyers and sellers can create information problems that pose a barrier to trade. By collecting new data on a sample of Nigerian importers, and connecting transaction details to trade process variables (such as whether the trader travelled), the researchers show that frequent, costly travel by Nigerian traders to meet with suppliers abroad is symptomatic of underlying information problems.
In partnership with a large garment factory in India, this project designs and implements a randomized controlled trial to study the impact of a year-long, in-depth soft skills training programme aimed at empowering low-skilled female labourers. It shows that the programme had positive impacts on retention, attendance, productivity and promotion rates, with some of these impacts sustained long after the end of the programme.
Data collected in Myanmar garment and processed food firms from 2013 to 2015 provide evidence that exporting has positive effects on fire safety and the other measures of working conditions. This effect can be a result of foreign buyers’ pressure to local firms to comply with international labour standards.
How does unreliability affect firms and industries? Exploring the impact of supply chain risk in Sub-Saharan Africa, this project shows how business actors confronted with unreliable supply chains specialize into producing less complex goods, as their production is less sensitive to disruptions.
Understanding the factors that drive or constrain firm-level innovation requires detailed micro-data. This project has collected and constructed an open-access dataset on innovation in Nigeria to support further research in this area.
This qualitative study aims to understand how and why different groups of informal women entrepreneurs in Nepal engage with, or make the transition to the formal sector
This project decomposes the sources of Brazil’s great inequality decline over the past two decades using a large administrative linked employer-employee dataset spanning 1988-2012. In contrast to commonly articulated stories, the study finds that the fall in earnings inequality was driven by a compression of pay differences between firms, rather than by changes in the distribution of firm productivity.
This study explores the consequences of the adoption of energy-efficient LED lighting in garment factories around Bangalore, India. We find that LED lighting, which emits less heat than conventional bulbs, decreases the temperature on factory floors, and thus raises productivity, particularly on hot days. These significant productivity gains imply high private returns to adopting LED lighting, in addition to its energy-efficient characteristics.
A randomized controlled trial shows that inducing knowledge sharing among garment workers in Bangladeshi factories increases firm level productivity. This provides novel experimental evidence for the long held hypothesis that organizational learning drives firm productivity growth.
This study examines the impact of training microentrepreneurs in Bangladesh in green production methods on ecological outcomes and business practices. Results from the pilot suggest that the intervention led entrepreneurs to adopt more environmentally-friendly production practices and to significantly reduce their use of harming input materials.
This project develops and tests a fleet management system for Kenya’s semi-formal public transport system. The pilot study shows that firms with the system are more easily able to track their employees’ productivity and safety performance, which allows owners to incentivize better driving behavior.
In contexts where formalization of firms and access to financial services is low, research shows that combining business registration with an information session at a bank including the offer of a business bank account leads to increased usage of financial services by entrepreneurs.
Providing entrepreneurs with business skills to help them grow their firms is important. But one size does not fit all - can better targeting of training programmes achieve greater returns to policymakers' investments?
Violent Conflict has numerous negative effects on private entrepreneurial activity and, as a consequence, on economic development. The authors show that even when we observe resilience of entrepreneurial activities in countries experiencing conflict (entrepreneurship increases with conflict), this is a sign of regressive structural change: a country moves towards low capital intensive and subsistence activities. However, entrepreneurial resilience may work as a foundation for post-conflict reconstruction and economic development.
This project investigates the extent and determinants of intra-national product market integration using a price approach in the context of Zambia, a low-income and landlocked country in Sub-Saharan Africa. The results show substantial within-country market segmentation, which is affected by both internal and external factors such as transportation costs, product-specific characteristics, location and tariff reforms.
This randomized controlled trial in partnership with a development bank in the Philippines employs credit scoring for small and medium enterprise (SME) lending and measures the impact of credit on SME growth - both directly for firms receiving loans and indirectly for their competitors.
Can internship programmes provide young entrepreneurs with valuable experiential learning on successful management practices? This pilot study confirms the viability of such a programme in promoting 'learning by doing', and builds the foundation for a full-scale internship experiment beginning in 2015.
This study uses a Brazilian tax reform to analyse the production loss caused by turnover taxes, a type of tax common in developing countries that distorts transactions between firms. It finds that removing a turnover tax led to a large expansion of Brazilian sectors that use intermediate inputs more intensively.
In contexts where ownership as a mode of access to productive assets is limited, research shows that leasing has a strong positive impact on micro-entrepreneur performance and differentiation from competitors.
Limited access to capital, risk of unpredictable price fluctuations, and the availability of more profitable alternatives may limit traders’ willingness to arbitrage away seasonal price fluctuations in African agricultural markets.
An estimation of the aggregate economic harm caused by cartels in developing countries provides evidence that it can be substantial irrespective of the scale of the economy in question.
This project piloted the first ever randomized evaluation of ‘microfranchising,’ measuring the impact of a program intended to help young women in Nairobi launch small-scale franchise businesses. Preliminary findings show that young women involved in microfranchising are more likely to become self-employed entrepreneurs as a result of the intervention. This, in turn, suggests that the burden of devising a business plan significantly contributes to hindering entrepreneurship in developing countries. The experiment is currently being scaled up to a larger multi-arm impact evaluation that will assess the impact of the microfranchising program compared to both a pure control and an unrestricted cash grant treatment.
This project examines how the provision of information improves regulatory compliance and business behaviour by using survey data of women in cross-border trade at the Busia border in Uganda. The results indicate that information about EAC protocol and trade regime increases regulatory compliance, and that basic financial awareness improves business practices and intermediate growth of the firm.
This project conducts a randomised field experiment in Egypt to study the channels through which export market access drives economic growth and reduces poverty. The findings indicate that linking firms to export markets substantially improves firm performance and may be an effective means of improving the livelihoods of the poor.
This project examines how the political power of market associations and local government effectiveness affect contractual trade and extortion in Lagos. Contrary to earlier research findings, the project concludes that without a check on their power, strong markets associations extort traders, and traders in such markets are less likely to obtain products on credit from their suppliers. These effects are mitigated when there is a balance of power between the market and local government, challenging the assertions that either impartial public institutions or strong private associations are necessary for market order.
A detailed survey of the Indian brick industry, collected for this study, shows substantial productivity dispersion, attributable to both technology differences and efficiency variation within each technology. Consistent with results from developed countries, this dispersion decreases in larger markets. However, in contrast to previous results, average productivity does not increase with market density.
This study collected yearly historical data on 140 rural villages in Eastern Democratic Republic of Congo to identify the conditions under which armed groups can create institutions favorable to private sector development in areas over which the central state has little or no authority. A new survey instrument aimed at reducing measurement error in historical and sensitive data was designed specifically for this project.
Using survey data on micro and small enterprises in Uganda, this study investigates the phenomenon of ‘adverse selection’ in credit markets – i.e. the presence of high-risk, low-return borrowers in the client base of microfinance institutions – and finds that lower interest rates and less stringent collateral requirements are likely to attract safer borrowers.
Using data collected from a sample of small firms in urban Zambia, this project investigates the existence of switching costs among Micro, Small and Medium Enterprises (MSMEs) when borrowing from commercial banks, and finds no evidence of MSMEs getting ‘locked in’ by their main bank.
This research note by Mamello Nchake and Lawrence Edwards (both University of Cape Town) summarizes the authors' stylised findings on price-setting behaviour among retail outlets in Lesotho using disaggregated product price data.
In this study of a large scale highway upgrade project in India, called the Golden Quadrilateral (GQ), Kerr, Grover and Ghani (2013) find several positive effects on the organized sector for non-nodal districts located in proximity with the GQ vis-à-vis other districts — most notably higher entry rates and improved allocative efficiency.
A census of formal firms in the Ethiopian leather industry reveals that the change in government policy was successful in attracting foreign direct investment in the processing of raw hides and in the manufacturing of leather products. This has led to some degree of technology transfer, albeit limited so far. Policies to encourage value‐added local processing have been more successful with the large foreign tanneries than the smaller Ethiopian ones.
Firm-level survey data for the period 2005-2011 in South Africa suggest that large firms have higher rates of net job creation than small firms and that there is a relatively high reallocation of employment across South African firms. In this Research Note, Kerr, Wittenberg and Arrow discuss the potentially important policy implications of these rather surprising results relative to existing beliefs about the South African labour market.
This research note by Blumenstock, Callen and Ghani (2013) outlines the impact of mobile salary payments on transaction costs for the employer, demand for mobile services and employees' savings.