dynamics? Chris Woodruff, University of Warwick UNU Wider 30 th - - PowerPoint PPT Presentation

Entrepreneurship, Firms and Growth in LICs:

What are we learning about enterprise dynamics?

Chris Woodruff, University of Warwick

UNU Wider 30th Anniversary Conference Helsinki – 19 September, 2015

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Own account vs. Employers

Source: ILO

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What do we know about moving down and to the right on that graph?

• I would say…not very much…at least yet
• Where do large employers come from?

– Are large firms just born large, or can they be built? – Are exports necessary for large private firms? – Do the micro- ever become medium? (or even small?)

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What constrains firm owners from hiring and growing?

• A, K, L: Likely all three.
• I will focus on capital constraints to capital, given the

limited time.

– At a macro level, evidence of serious misallocation: Banerjee and Duflo’s 2005 handbook chapter, Hsieh and Klenow 2008 QJE – Constraints on credit, particularly among the poor, have been recongnized for a long time.

• But until recently, convincing evidence has been

wanting.

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What does the more recent evidence say?

A puzzle:

• From several field experiments: Evidence that returns to

marginal investments of capital are very high in very small enterprises

– Sri Lanka (DMW 2008, 2009, 2012); Ghana (FMQW 2011); Mexico (MW, 2008)

And yet:

• From several field experiments: Evidence that effect of

microfinance on enterprise growth is very limited

– AEJ-Applied Jan 2015 for India, Mexico, Bosnia, Ethiopia,

Mongolia.

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A puzzle is a good result!

• The puzzle stimulates thinking about why these

differences are there

– FPPR 2015: Need to start repaying immediately is a constraint to risk-taking. Solution? 2-month grace period.

• Good news: It works! Borrowers take more risks, earn

much higher returns

• Bad news: Default rates increase enough that it is

unprofitable for MFIs – New work underway on other ways to overcome the initial repayment problem

• This is an area where the new experimental

techniques are moving us forward

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But capital is the easy one

• One form is sufficient: Cash

– Okay, there could be other issues. Commitment issues, lumpy investments, etc.

• But think about the “A” in AKL production functions:

Evaluating training programs.

– MW (2012) review 16 experiments on microenterprise

• training. The punchline?

– We haven’t learned much, if anything.

• Variance in target entrepreneurs; different training

material; different sectors, etc.

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And microenterprises are the easy ones

• Understanding dynamics in larger firms is much more

challenging.

– Fewer in number – More challenging to work with

• Opportunities in administrative data

– Administrative records in firms

• IT costs have fallen faster than salaries of analysts

– Government data exists in many countries, but access is very personalized. So far, access is slow and sporadic.

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And microenterprises are the easy ones

• But we are beginning to see progress on larger firms

as well, from a variety of approaches

– Sutton’s enterprise maps – Bloom et al management practices – Deep dives into specific industries, combining theory and experiments: Atkin et al (soccer balls, rugs); Keniston (bricks); Macchiavello and Morjaria (coffee); Woodruff et al (garments), etc.

• In common with other topics, an evolution of

research methods, from theory-intensive work 

• bservational data-driven work  experimental

work.

– And more recently, some resurgence in theory, but often bundled with experiments.

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Concluding thoughts on the bigger picture

• I recall the time when Ronald McKinnon was

ridiculed for suggesting that weak capital markets were a major source of under-development.

• For the first half of the last 30 years, the (formal,

domestic) private sector has hardly been on the development agenda.

• I expect at UNU-WIDER’s 50th anniversary, the

private sector will play a more prominent role.

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