Private Enterprise Development in Low-Income Countries

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Private Enterprise Development in Low-Income
Countries
A joint research initiative of the Centre for
Economic Policy Research (CEPR) and the
Department For International Development (DFID).
Its purpose is to develop a research programme
focusing on private-sector development in
low-income countries. (www.cepr.org
www.dfid.gov.uk)

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Who are we?

• CEPR is a network of 700 leading researchers,
  most based in Europe, who conduct research in a
  variety of applied, policy-relevant areas
• Development Economics
• Industrial Organisation
• International Trade
• Activities of CEPR
• Conferences and workshops
• Research support
• Working paper series
• Vox, Vox EU
• Key personnel
• Stephen Yeo, CEO and policy outreach coordinator
  for PEDL
• Viv Davies, COO and administrative director for
  PEDL
• Chris Woodruff, Scientific Coordinator of PEDL
  Professor of Economics at the University of
  Warwick, affiliate of CEPR, NBER, BREAD, IZA
  Co-Director of the firm capabilities group at the
  IGC.

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Overview of PEDL Research focus

• A 5-year project, to develop a better
  understanding of what determines the strength of
  market forces driving efficiency in low-income
  countries
• Research focused on low-income countries, using
  new tools so far applied mostly to the U.S and
  Europe.
• Techniques For example, structural industrial
  organisation models useful in understanding
  interactions between firms.
• Data For example, matched employer-employee
  data, or transaction level export data, which are
  or might be made available in LICs
• A competitive research grants programme
• Major research grants
• Smaller, exploratory grants

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Overview of PEDL Other activities

• Policy outreach
• At the project level and the initiative (PEDL)
  level
• Throughout the research projects, beginning (PIP)
  to end (Policy briefs)
• We will also undertake other activities aimed at
  building a research community in private
  enterprise development in low-income countries,
  such as
• Research workshops
• Training workshops
• A working paper series
• A dedicated policy website

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Overview of PEDL Research areas

• Research focused on developing a better
  understanding of how the structure of markets
  affects the dynamics of firms in low-income
  countries
• Modelling market frictions
• Macro data and models
• MSMEs and entrepreneurship
• Export oriented industries
• PEDL will encourage work related to three themes
• Fragile and conflicted states
• Gender
• Climate change
• Competitive research grants, so encouragement at
  the application phase will be particularly
  important

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PEDL Research themes 1) market frictions

• Greater dispersion of productivity in low-income
  countries.

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FIG 1. FIRM LEVEL MANAGEMENT SCORES
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PEDL Research themes 1) market frictions

• Greater dispersion of productivity in low-income
  countries.
• Significant progress in understanding
  market-level behaviour and interactions in
  higher-income economies (esp. through structural
  models of markets by IO economists)
• The challenge is to extend those tools to
  low-income countries (Noton 2011, for Chile)

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PEDL Research themes 1) market frictions

• Examples of research questions
• How do market frictions affect the incentives of
  the owners and managers of firms to innovate and
  increase productivity?
• How does the entry of MNCs or new very large
  domestic firms affect market dynamics and
  incentives for smaller incumbent firms?
• How do mechanisms which firms devise to govern
  their trading relations in fragile and conflict
  affected states (FCAS) affect market frictions
  and competitive environments?
• What limits the effect of competition in
  disciplining low-productivity firms
• Foster, Haltiwanger, Syverson (2008) in U.S.

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PEDL Research themes 1) market frictions

• Some possible gender angles
• Lack of competitive pressure related to
  particular constraints to entry / growth of
  female-owned enterprises?
• Competition policy and the lack of competition
  also affects low income households as consumers.

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PEDL Research themes 2) macro data and models

• Developments in one sector of the economy may
  have (positive or negative) effects on other
  sectors. Firm, or even sector level analysis may
  miss these.
• Paweenawat and Townsend (2011) The Village as a
  Small Open Economy
• Buera, Kaboski and Shin (2010) Tale of two
  Sectors

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Buera et al Tale of Two Sectors
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PEDL Research themes 2) macro data and models

• Examples of research questions
• How do constraints to enterprise growth interact
  with one another?
• What are the distributional consequences of a
  hostile investment climate? In particular, what
  is the effect on the poor and on women?
• How does the impact of the investment climate on
  one sector spill over to other sectors?

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PEDL Research themes 3) MSMEs and
entrepreneurship

• Where does job growth come from?
• Small firms? No, Young firms
• Haltiwanger, Jarmin and Miranda (2009) Our
  findings highlight the important role of business
  startups and young businesses in U.S. job
  creation.
• Subsistence vs. transformational
• Schoar 2010 de Mel et al 2011
• Spinouts
• Hirakawa, Meundler and Rauch (2011) Depending
  on definition, employee spinoffs account for
  between one-sixth and one-third of the new firms
  in Brazils private sector.

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PEDL Research themes 3) SMEs and entrepreneurship

• Common element of these analyses? Data!
• Comprehensive employer-employee matched data
• Data generated from surveys
• Matching household surveys and administrative
  records

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Cabral and Mata AER 2003
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PEDL Research themes 3) SMEs and entrepreneurship
Source Gollin 2002
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Fafchamps et al 2011
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Fafchamps et al 2011
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Table 4 Impact on Firm Performance for Current Enterprises Table 4 Impact on Firm Performance for Current Enterprises Table 4 Impact on Firm Performance for Current Enterprises Table 4 Impact on Firm Performance for Current Enterprises Table 4 Impact on Firm Performance for Current Enterprises          
  All rounds pooled All rounds pooled All rounds pooled All rounds pooled Round 2 Round 2 Round 3 Round 3 Round 4
  (1) (2) (3) (3) (4) (4) (5) (5) (6)
    Truncated     Truncated Truncated Truncated Truncated Truncated
  Levels Levels Logs Logs Levels Levels Levels Levels Levels
Panel A Monthly Profits                  
ITT Effects                  
Assigned to Cash if finish Training 1,195 1,520 0.213 0.213 1,801 1,801 1,955 1,955 441.4
  (884.1) (645.9) (0.0755) (0.0755) (945.6) (945.6) (929.7) (929.7) (1,191)
Assigned to Training only -574.7 -118.0 0.0450 0.0450 24.92 24.92 -79.99 -79.99 -531.2
  (908.7) (661.1) (0.0797) (0.0797) (904.7) (904.7) (952.1) (952.1) (1,223)
TOT Effects                  
Received Training Cash 1,765 2,236 0.312 0.312 2,587 2,587 2,885 2,885 656.7
  (1,203) (882.3) (0.103) (0.103) (1,046) (1,046) (1,058) (1,058) (1,307)
Received Training Only -746.1 -146.4 0.0602 0.0602 22.99 22.99 -90.80 -90.80 -699.0
  (1,105) (804.9) (0.0978) (0.0978) (897.6) (897.6) (964.3) (964.3) (1,215)
                   
Baseline Mean 4014 4014 8.14 8.14 4004 4004 4023 4023 4016
                   
Observations 1,592 1,592 1,527 1,527 538 538 542 542 512
Firms 577 577 571 571 538 538 542 542 512
Notes                  
Robust standard errors in parentheses clustered at the firm level when all rounds used, plt0.01, plt0.05, plt0.1 Robust standard errors in parentheses clustered at the firm level when all rounds used, plt0.01, plt0.05, plt0.1 Robust standard errors in parentheses clustered at the firm level when all rounds used, plt0.01, plt0.05, plt0.1 Robust standard errors in parentheses clustered at the firm level when all rounds used, plt0.01, plt0.05, plt0.1 Robust standard errors in parentheses clustered at the firm level when all rounds used, plt0.01, plt0.05, plt0.1 Robust standard errors in parentheses clustered at the firm level when all rounds used, plt0.01, plt0.05, plt0.1 Robust standard errors in parentheses clustered at the firm level when all rounds used, plt0.01, plt0.05, plt0.1 Robust standard errors in parentheses clustered at the firm level when all rounds used, plt0.01, plt0.05, plt0.1 Robust standard errors in parentheses clustered at the firm level when all rounds used, plt0.01, plt0.05, plt0.1 Robust standard errors in parentheses clustered at the firm level when all rounds used, plt0.01, plt0.05, plt0.1
All specifications also include survey round dummies, baseline outcome value, and controls for randomization strata. All specifications also include survey round dummies, baseline outcome value, and controls for randomization strata. All specifications also include survey round dummies, baseline outcome value, and controls for randomization strata. All specifications also include survey round dummies, baseline outcome value, and controls for randomization strata. All specifications also include survey round dummies, baseline outcome value, and controls for randomization strata. All specifications also include survey round dummies, baseline outcome value, and controls for randomization strata. All specifications also include survey round dummies, baseline outcome value, and controls for randomization strata. All specifications also include survey round dummies, baseline outcome value, and controls for randomization strata. All specifications also include survey round dummies, baseline outcome value, and controls for randomization strata. All specifications also include survey round dummies, baseline outcome value, and controls for randomization strata.
Truncated levels truncate at the 99th percentile. Truncated levels truncate at the 99th percentile. Truncated levels truncate at the 99th percentile.              
de Mel et al 2011
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PEDL Research themes 3) SMEs and entrepreneurship

• Examples of research questions
• Who becomes an entrepreneur in LICs, and how does
  the selection into entrepreneurship compare with
  selection in high-income countries, for both men
  and women?
• How do the dynamics of enterprise growth and the
  characteristics of entrepreneurs differ in
  fragile and conflict affected states?
• More generally, where do the most dynamic
  entrepreneurs come from? Are there policies which
  are successful in encouraging these more dynamic
  entrepreneurs to start businesses?

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PEDL Research themes 4) Export-oriented
industries

• Export markets are highly competitive.
• Exporting firms are more efficient
• Exporting leads to up or out quality upgrading
  (Verhoogan 2008 Aghion et al 2003 Amiti and
  Khandelwal 2009)

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Amiti and Khandelwal 2009
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PEDL Research themes 4) Export-oriented
Industries

• Examples of research questions
• Does the need to produce higher quality goods for
  the export market have important spillovers for
  the domestic sectors, either through training of
  workers or demand for more efficient local
  partners?
• Which sectors of society benefit from export
  sectors, and what policies can help ensure that
  the benefits extend to households in the lowest
  income deciles?
• What is the relationship between export sectors
  and the overall business environment? Do
  exporters create pressure for better
  institutions?

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PEDL Policy outreach

• The goal of the research programme is to
  influence policy in LICs. Both the funded
  researchers and CEPR responsible for ensuring
  outreach takes place 
• Two levels at which influence is exercised
• Project on policy in the country where the
  research takes place
• Initiative across research projects and across
  LICs

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PEDL Policy outreach, Project level

• Policy influence requires sustained dialogue
  between researchers and policymakers
• through small-group meetings, conferences,
  workshops, and written documents
• Must start at the beginning of the research
  project and continue throughout the life of the
  project
• Policy Impact Plans (PIPs)
• Must be included as part of each research
  proposal Quality and feasibility of the PIP one
  of the evaluation criteria
• Defines a plan for outreach to members of the
  policy community and private sector most directly
  interested in the research (varies with country
  and thematic focus)
• Wherever possible will build on partnerships with
  and involvement of locally-based researchers, who
  are highly likely to have established
  relationships with policymakers
• Researchers must take the lead on this, will be
  supported by CEPR with advice, training CEPR
  will exercise oversight

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PEDL Policy outreach, Initiative level

• Project level outreach is important but not
  sufficient on its own. Why?
• Cross country learning Findings in one LIC may
  have implications for other LICs
• Cross project learning Projects may also
  complement one another, so that the policy impact
  of the whole may be greater than that of each
  project taken by itself.
• CEPR will take responsibility at the Initiative
  level
• Cross-project, cross-country, regional and global
  dissemination initiatives
• Will focus on
• Publications focusing on target groups of
  policymakers and business leaders
• Conference formats that bring together
  researchers and practitioners, involving strong
  representation from LICs
• Synthesis and communication of knowledge on
  issues of private enterprise development and
  policy in LICs, particularly to LIC policymakers
  and business leaders, and especially through the
  PEDL and VoxAfrica web policy portals

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Additional goals

• Expanding the base of researchers working on PEDL
  issues
• Small grants program 10-35k grants
• Exploratory projects from established researchers
• PhD students
• Building links to researchers in LICs
• Training seminars
• 20-25 LIC researchers for week-long programs in
  2012, 2014
• Invitations of conferences and workshops for
  networking
• Making data available
• Kick-off workshop with a data focus
• Involvement of policy makers who can increase
  availability
• Funding of data work with administrative data,
  complementary surveys.

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PEDL Next steps

• 10 December 2011 Website for small grants opened
  
• 1 February Review of first small grants
  commences
• 29 February First small grants awarded
• 1 February 2012 Call for large grants
• 31 March 2012 Deadline for first large call
  grants
• 31 July First large grant awardees announced
• 18/19 May Kick-off conference, UK (London)
• 25-30 June First training workshop, UK (Warwick)

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PEDL Summary

• An ambitious program which we believe has the
  ability to set a new research agenda on issues
  related to private enterprise development in
  low-income countries.
• Adoption of newly available research techniques
  in low-income country research
• Influencing the policy dialogue on these issues
• Expanding the base of researchers working on
  these topics, both in Europe / US, and in
  low-income countries

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PEDL How can you help us move PEDL forward?

• Question for discussion How do we integrate
  gender into each of the research themes?

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• Thank you!