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Private Sector Development

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.

The Toyota way or Entropy? What did we find when we went back 8-9 years after improving management in Indian factories?

David McKenzie's picture

Between 2008 and 2010, we hired a multinational consulting firm to implement an intensive management intervention in Indian textile weaving plants. Both treatment and control firms received a one-month diagnostic, and then treatment firms received four months of intervention. We found (ungated) that poorly managed firms could have their management substantially improved, and that this improvement resulted in a reduction in quality defects, less excess inventory, and an improvement in productivity.

Should we expect this improvement in management to last? One view is the “Toyota way”, with systems put in place for measuring and monitoring operations and quality launch a continuous cycle of improvement. But an alternative is that of entropy, or a gradual decline back into disorder – one estimate by a prominent consulting firm is that two-thirds of transformation initiatives ultimately fail. In a new working paper, Nick Bloom, Aprajit Mahajan, John Roberts and I examine what happened to the firms in our Indian management experiment over the longer-term.

Can predicting successful entrepreneurship go beyond “choose smart guys in their 30s”? Comparing machine learning and expert judge predictions

David McKenzie's picture

Business plan competitions have increasingly become one policy option used to identify and support high-growth potential businesses. For example, the World Bank has helped design and support these programs in a number of sub-Saharan African countries, including Côte d’Ivoire, Gabon, Guinea-Bissau, Kenya, Nigeria, Rwanda, Senegal, Somalia, South Sudan, Tanzania, and Uganda. These competitions often attract large numbers of applications, raising the question of how do you identify which business owners are most likely to succeed?

In a recent working paper, Dario Sansone and I compare three different approaches to answering this question, in the context of Nigeria’s YouWiN! program. Nigerians aged 18 to 40 could apply with either a new or existing business. The first year of this program attracted almost 24,000 applications, and the third year over 100,000 applications. After a preliminary screening and scoring, the top 6,000 were invited to a 4-day business plan training workshop, and then could submit business plans, with 1,200 winners each chosen to receive an average of US$50,000 each. We use data from the first year of this program, together with follow-up surveys over three years, to determine how well different approaches would do in predicting which entrants will have the most successful businesses.

What’s the latest in development economics research? A round-up of 140+ papers from NEUDC 2017

David Evans's picture


Did you miss this year’s Northeast Universities Development Consortium conference, or NEUDC? I did, unfortunately!

NEUDC is a large development economics conference, with more than 160 papers on the program, so it’s a nice way to get a sense of new research in the field.
Thankfully, since NEUDC posts submitted papers, I was able to mostly catch up. I went through 147 of the papers and summarized them below, by topic. If a paper you loved or presented isn’t in the rundown, feel free to add a brief summary in the comments. (Why 147 instead of 160? I skipped a few macro papers and the papers that weren’t posted.)

These links should take you to your topic of interest: Agriculture, cash transfers and asset transfers, credit and insurance, crime, conflict, violence, and war, culture, norms, and corruption, education, elections and political economy, firms, governance, bureaucracy, and social capital, health (including WASH), jobs (including public works), marriage, methodology, migration, mobile phones and mobile money, poverty, inequality, and shocks, psychology, taxes, and traffic.

A new answer to why developing country firms are so small, and how cellphones solve this problem

David McKenzie's picture
Much of my research over the past decade or so has tried to help answer the question of why there are so many small firms in developing countries that don’t ever grow to the point of adding many workers. We’ve tried giving firms grants, loans, business training, formalization assistance, and wage subsidies, and found that, while these can increase sales and profits, none of them get many firms to grow.

What happens when business training and capital programs get caught in the web of intrahousehold dynamics?

Markus Goldstein's picture
Two weeks ago, I blogged about a new paper by Arielle Bernhardt and coauthors which looked at the idea that when women receive a cash infusion from a program, they may give it to their husbands to invest in their business.
 

Money for her or for him? Unpacking the impact of capital infusions for female enterprises

Markus Goldstein's picture
In a 2009 paper, David McKenzie and coauthors Chris Woodruff and Suresh de Mel find that giving cash grants to male entrepreneurs in Sri Lanka has a positive and significant return, while giving the same to women did not.   David followed this up with work with coauthors in Ghana that compared in-kind and cash grants for women and men.  Again, better returns for men (with in-kind working for some

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