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).

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)

2A joint research initiative of the Centre for Economic Policy Research (CEPR) and the Department For International Development (DFID).

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.


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


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


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


PEDL Research themes: 1) market frictions

• Greater dispersion of productivity in low-income countries.

FIG 1. FIRM LEVEL MANAGEMENT SCORES

0.5

11

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1.5

0.5

11

.5

1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5

China France Germany Greece

India Italy Japan Poland

Portugal Sweden UK US

De

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Our management score - average across 18 questionsGraphs by Country where firm is located



• 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)



• 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.



• 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.


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’


Buera et al: Tale of Two Sectors


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?


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 Brazil’s private sector.”


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

Cabral and Mata AER 2003



Source: Gollin 2002

0.2

.4.6

.81

0 500 1000 1500Waves 5 and 6 profits - Females

Control CashEquipment

Fafchamps et al 2011

0.2

.4.6

.81

0 500 1000 1500Waves 5 and 6 Profits - Males

Control CashEquipment

Fafchamps et al 2011

Table 4: Impact on Firm Performance for Current Enterprises All rounds pooled Round 2 Round 3 Round 4 (1) (2) (3) (4) (5) (6)

Truncat

ed Truncate

d Truncated Truncated Levels Levels Logs Levels Levels LevelsPanel A: Monthly Profits ITT Effects Assigned to Cash if finish Training 1,195 1,520** 0.213*** 1,801* 1,955** 441.4 (884.1) (645.9) (0.0755) (945.6) (929.7) (1,191)Assigned to Training only -574.7 -118.0 0.0450 24.92 -79.99 -531.2 (908.7) (661.1) (0.0797) (904.7) (952.1) (1,223)TOT Effects Received Training & Cash 1,765 2,236** 0.312*** 2,587** 2,885*** 656.7 (1,203) (882.3) (0.103) (1,046) (1,058) (1,307)Received Training Only -746.1 -146.4 0.0602 22.99 -90.80 -699.0 (1,105) (804.9) (0.0978) (897.6) (964.3) (1,215) Baseline Mean: 4014 4014 8.14 4004 4023 4016 Observations 1,592 1,592 1,527 538 542 512Firms 577 577 571 538 542 512Notes: Robust standard errors in parentheses clustered at the firm level when all rounds used, *** p<0.01, ** p<0.05, * p<0.1All specifications also include survey round dummies, baseline outcome value, and controls for randomization strata.Truncated levels truncate at the 99th percentile.

de Mel et al 2011



• 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?


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)


Amiti and Khandelwal 2009


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?


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


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


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


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.


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)


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


PEDL: How can you help us move PEDL forward?

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


Thank you!

Documents

Private Enterprise Development in Low-Income Countries