Study: Responsible Sourcing? Theory and Evidence from Costa Rica
Presenter: Isabela Manelici
Co-authors: Alonso Alfaro-Urena, Benjamin Faber, Cecile Gaubert and Jose P. Vasquez.
Status: Working paper
Abstract: Multinational enterprises (MNEs) increasingly impose "responsible sourcing'' (RS) standards on their suppliers worldwide, including requirements on worker compensation, benefits and working conditions. Are these policies just "hot air'' or do they impact exposed suppliers? What is the welfare incidence of RS in sourcing origin countries? To answer these questions, we develop a quantitative general equilibrium (GE) model of RS and combine it with a unique new database. In the theory, we show that the welfare implications of RS are a priori ambiguous, depending on an interplay between what is akin to an export tax (+) and a labor market distortion (-). Empirically, we combine the near-universe of RS rollouts by MNE subsidiaries in Costa Rica (CR) since 2009 with firm-to-firm transactions and matched employer-employee microdata. Using these data, we find that RS rollouts lead to significant reductions in firm sales and employment at exposed suppliers, an increase in their salary payments to initially low-wage workers and a reduction in their low-wage employment share. We then use the estimated effects and the microdata to calibrate the model and quantify GE counterfactuals. We find that while MNE RS policies have led to significant gains among the roughly 20% of low-wage workers employed at exposed suppliers ex ante, the majority of low-wage workers in CR lose due to adverse indirect effects on their wages and the domestic price index.
Study: What Predicts the Growth of Small Firms? Evidence from Tanzanian Commercial Loan Data
Presenter: Cynthia Kinnan
Co-authors: Mia Ellis, Margaret McMillian and Sarah Shaukat
Status: Preliminary results
Abstract: Not all firms have equal capacity to absorb productive credit; identifying those with higher potential may have large consequences for productivity. We collect detailed survey data on small- and medium-sized Tanzanian firms who borrow from a large commercial bank. Using machine learning methods to identify predictors of loan growth, we document several facts. First, we achieve high rates of predictive power. Second, responses about entrepreneurs’ motivations for entrepreneurship, constraints faced, etc. have predictive power over and above administrative data (sector, age, etc.). Third, there is a different and larger set of predictors for women than men, consistent with greater misallocation among female entrepreneurs.
Study: Capacity building as a route to export market expansion: A six-country experiment in the Western Balkans
Presenter: Ana Paula Cusolito
Co-authors: David Mckenzie and Ornella Darova
Status: Finished paper
Abstract: The limited market size of many small emerging economies is a key constraint to the growth of innovative small and medium enterprises. Exporting offers a potential solution, but firms may struggle to locate and appeal to foreign buyers. We conducted a six-country randomized experiment with 225 firms in the Western Balkans to test the effectiveness of 30 hours of live group-based training and 5 hours of one-on-one remote consulting in overcoming these constraints. Treated firms used techniques such as search engine optimization and improved Facebook content to increase their digital presence and better reach foreign customers. A year later, we found positive and significant impacts on the number of customers, and a significant intensive margin increase in export sales. Qualitative interviews suggest this improvement came from a combination of sector-specific advice on market expansion, and through an encouragement effect which gave entrepreneurs the confidence to try new markets.
Study: Do Demand Side Norms Limit Female Employment? Experimental Evidence from Pakistan
Presenter: Jean Lee
Co-authors: Maurizio Bussolo, Mahreen Mahmud, Nayantara Sarma, Anaise Williams and Nele Warrinnier
Status: Preliminary results
Abstract: Female labor force participation remains stubbornly low in many places around the world, and especially so in the Middle East, North Africa, and South Asia, despite decades of growth and substantial improvements in female educational enrollment. Restrictive social norms around the gender division of labor are widely believed to be a major barrier for women to increase their labor supply as working outside the house might be deemed socially unacceptable. Less well studied is how social gender norms affect the demand side of the labor market as potential employers who hold restrictive gender norms may limit female employment by refusing to hire women in their firms. In this study, we present evidence from a randomized experiment testing whether temporary wage subsidies offered to hiring managers can increase female employment in Pakistani firms, which are heavily dominated by male employees. The intervention is delivered in collaboration with the online job platform, Rozee, which is the main digital job platform in Pakistan and has over 100,000 registered firms and 5 million jobseekers. During the intervention we offer hiring managers of firms in the treatment arm a 6-month wage subsidy to hire women for technical/professional roles. We use the Becker-DeGroot-Marschak (BMD) mechanism to elicit truthful reporting of the level of subsidy that firms would need to hire a female candidate. Preliminary evidence shows that hiring managers who hold more progressive social gender norms demand lower wage subsidies to hire women. The intervention is currently in the field.
Study: Entrepreneurship Education and Teacher Training in Rwanda: Medium-term Evidence
Presenter: Todd Pugatch
Co-authors: Moussa Blimpo
Status: Finished paper
Abstract: The persistently high employment share of the informal sector makes entrepreneurship a necessity for youth in many developing countries. We evaluate medium-term results of a randomized control trial (RCT) of an intensive, multi-year training for entrepreneurship teachers in Rwandan secondary schools. Endline results were promising, with high teacher takeup, pedagogical changes as intended, and increased entrepreneurial activity among students. In this follow-up study, we find that increased entrepreneurship persisted one year later, with students in treated schools six percentage points more likely to be involved in business, an increase of 19 percent over the control mean. Treated students were also more likely to be enrolled in university. However, gains in entrepreneurship faded after three years, in 2021. Employment was six percentage points lower in the treatment group. We find no robust differences in income or profits between treatment and control groups. Exploratory analysis reveals lower incomes and profits among marginal students induced into entrepreneurship by the program. The results suggest the program did not help treated students adapt to the complex business conditions of the pandemic. The lack of durable changes in student outcomes underscores the difficulties in escaping the “tyranny of the curriculum” in developing country education systems.
Study: Organizational Responses to Product Cycles: Evidence from Auto Manufacturing
Presenter: Jorge Tamayo
Co-authors: Anant Nyshadham, Achyuta Adhvaryu and Nicolas Torres
Status: Working paper
Abstract: Product cycles entail the mass production of new -- and often increasingly complex -- products on a regular basis. How do firms manage this highly dynamic production environment? We use data from a leading auto manufacturer to demonstrate the organizational impacts of the introduction of new models on the auto assembly line. We show that demand (number of vehicles) and number of total parts do not change in the short term after a new model is introduced; the main change is a large, discontinuous increase in new parts. The production of new models thus necessitates rapid learning-by-doing: we accordingly show that defects per vehicle increase substantially after the production change and decrease to their prior level over a period of 2-3 weeks. We next ask how the firm’s organization facilitates this problem-solving. We find that the firm promotes mid-level employees to manage the production of new parts but waits to back-fill mid-level positions until after defect rates recover. That is, the firm reduces the distance -- in terms of managerial layers -- between front-line workers, who are dealing with these new tasks, and managers further up the hierarchy, who have the necessary knowledge to solve complex problems. We show that this organizational response is unique to changes in models: when the firm needs to produce higher quantities of the same model instead, the firm adds layers to the hierarchy, as predicted by canonical models of knowledge-based hierarchies. In sum, we uncover the surprising flexibility of organizational structure in response to product cycles, and the extent to which organizational changes allow firms to survive and grow in highly dynamic markets.
Study: Stronger Together: Promoting Exports through Female-only SME Consortia in Tunisia
Status: Preliminary results
Presenter: Amira bouziri
Co-authors: Florian Münch and Fabian Scheifele
Abstract: Exporting provides business opportunities with high return but only the most productive companies, which are predominantly owned and managed by men, overcome the fixed costs of exporting. Exporting is particularly difficult as it requires high managerial knowledge and skills as well as the network and confidence to create international contacts, all of which female entrepreneurs tend to lack. We test an intervention that tackles these various problems at a time. Export-interested female entrepreneurs in complementary sectors receive support to establish a consortium, a legally connected group of firms, to cooperate in exporting their products abroad over two years. Simultaneously, the firms receive individual and consortia-level consultancy regarding their export strategy. The consortia provide the women with a new business network disconnected from family structures, contacts to exchange about common business challenges and strategies to succeed as a female entrepreneur in international markets as well as the legal framework to collectivize the fixed costs of exporting. At one and two years post the start of the intervention, we measure effects on women’s business empowerment, network size and quality, business, management and export practices as well as their export performance.
Study: Information and Strategy in Lemon Markets: Improving Safety in Informal Transit
Presenter: Gregory Lane
Co-authors: Erin Kelley and David Schönholzer
Status: Working paper
Abstract: Road traffic accidents in poorly regulated public transit is a leading cause of death in low- and middle-income countries. We study how providing information about bus safety to passengers affects the demand and supply of safer public transit. We collect high-frequency measures of safe driving for five firms operating on one of the busiest long-range routes in Kenya, using a newly developed tracking device. In a first ex- periment, we privately inform passengers which firm is the safest choice. In a second experiment, we then provide a public signal to both passengers and firms that buses are now being tracked. Treated passengers do not respond to private information at first, but after the introduction of the public signal they substitute strongly towards the safe firm, and some firms provide safer services. We rationalize these effects in a model of heterogeneous firms responding strategically to higher demand for safety due to the public signal. We derive welfare estimates of alternative equilibria, which imply that the welfare effects of information interventions crucially depend on the nature of the market equilibrium.
Study: Entrepreneurship Training at Scale
Presenter: Austin Davis
Status: Work in progress (no results)
Abstract: Entrepreneurship training is a widely deployed and widely studied development intervention, reflecting research and policymaker interest in the large population of small entrepreneurs in developing contexts. But, despite the size of the target population and existing programs, limited evidence exists about the effects of entrepreneurship training at scale. Here, we present the design of a research agenda addressing several complexities that may emerge when entrepreneurship training reaches large groups of entrepreneurs. We plan to deliver a soft-skills training based on the Personal Initiative training curriculum that has shown promise in multiple randomized evaluations. We will conduct a randomized saturation experiment to address four key scale-related questions. The first is spillovers, including effects on competitors and customers, which may enhance or undermine the direct effects of training. The second is treatment effect heterogeneity and external validity; expanding entrepreneurship training often means reaching groups that were not included in preliminary studies, where effectiveness is less certain. The third is political economy effects. The networking and problem-solving aspects of the training may promote political advocacy among participants. Large training programs may provoke organized resistance from competitors in business or for public resources. Finally, we hope to advance explanations for the well-known differences in firm size distributions across contexts by combining a macroeconomic model with experimental variation in productivity and capital.
Study: Business Model Innovation to Reduce Lead Poisoning in Bangladesh
Presenter: Amrita Kundu
Co-authors: Erica Plambeck and Qiong Wang
Status: Work in progress (no results)
Abstract: Lead poisoning, largely due to informal recycling of lead acid batteries from vehicles, causes widespread health problems, cognitive disabilities, violent crime and lost economic productivity in developing countries. The rate of informal recycling of lead acid batteries is growing sharply in countries such as Bangladesh due to adoption of electric three-wheeled vehicles that use poor quality batteries with very short life. Battery quality is poor because: (i) battery users are financially constrained, so battery manufacturers compete on price instead of quality, (ii) a lemons market failure in the market increases uncertainty in battery quality and reduces buyers’ willingness to pay a price premium for long-lasting batteries, and (iii) poor battery maintenance and charging practices by users reduces useful life of batteries and reduces manufacturers willingness to increase battery quality and warranty length (double moral hazard). Lack of regulation in the market and regulatory capacity constraints in Bangladesh contribute to these market inefficiencies and result in informal battery recycling.
Through this research, we are catalyzing a novel private sector approach to reduce lead poisoning by aligning economic incentives that will increase the demand for high quality electric three wheeler batteries and increase adoption of best practices in battery use and maintenance, thereby increasing battery life and reducing the rate of informal recycling and associated lead emissions. The business model will also ensure collection of batteries and recycling through a formal channel, which will directly reduce lead poisoning. In this business model, a partnering microfinance organization will provide microfinance loans for sets of high quality batteries by partnering manufacturers to credit-worthy vehicle owners, and induce them to adopt best practices in charging, maintenance and limiting depth of discharge to maximize the performance and useful life of the batteries. Through a randomized control trial, we will assess the impact of the business model on reducing lead poisoning, CO2 emissions and mitigating poverty, and develop new knowledge for improving the efficiency of markets for durable goods in developing economies to improve environmental sustainability.