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SMEs

Marginal changes for the many or focusing on the few? Trade-offs in firm support policies and jobs

David McKenzie's picture

Should governments aiming to improve job opportunities devote additional resources towards trying to provide programs that attempt to generate marginal changes in many micro and small firms, or try to target the support towards making larger impacts on a smaller number of high-growth and larger firms? For example, should a government spend an additional $5 million on grants and training programs that support 25,000 micro firms at $200 each, use it to give 100 grants of $50,000 each to 100 high-growth potential firms, or use it as a single $5 million tax incentive to encourage one large multinational to set up a manufacturing plant in the country? I’ve been asked my thoughts on this question quite a few times, so thought I’d share them here.
 
The answer involves many different trade-offs and considerations, and I attempt to summarize some of the key ones in this post. The bottom line is that there are trade-offs (at least in the short-run) between poverty alleviation and productivity growth, and that different policies will have impacts on different types of job creation. A key lesson for policymakers is to be clear about what the job problem is that they are trying to solve, and not try to use the same policy instrument to achieve multiple competing priorities.

A Call for Innovative Ideas on SME Growth

David McKenzie's picture

I wanted to alert our readers to a new competition for ideas of how to best foster Small and Medium Enterprise (SME) growth.  Typically with impact evaluation we end up evaluating a program that others have designed, or working with the occasional bank or NGO that is willing to try a new idea, but usually with firms that are very small in size.  What is missing is a space where people with innovative ideas can get them into the hands of governments designing SME programs. I am working with the new Trade and Competitiveness Global Practice at the World Bank to try to do something new here, to give researchers and operational staff with ideas the chance to get them to a stage where they can become part of World Bank projects, and thereby have the potential to be implemented at much larger scale on lots of SMEs.

Some highlights from the IPA Impact and Policy Conference + is proof of concept policy relevant?

David McKenzie's picture

At the end of August I gave several presentations at the IPA Impact and Policy Conference in Bangkok, which had days on SME development, Governance and Post-Conflict recovery, and Financial Inclusion. The agenda is here. There was a good mix of new results from studies that don’t get have papers, along with more polished work on the conference topics.

Fundamentally unknowable? Can we learn whether our firm policies in Africa are working?

David McKenzie's picture

Millions of dollars are spent each year trying to improve the productivity of firms in Africa (and those in other developing countries), yet we have very little rigorous evidence as to what works. In a new working paper I look at whether it is even possible to learn whether such policies even work, and what can be done to make progress.

Small number of firms + Large heterogeneity = Not much power