Introducing J-PAL's Firms sector
What role do policies that affect private sector firms play in closing the productivity gap between higher-income and lower-income countries, and what are the implications of firms’ policies on economic growth and worker welfare?
Economists have long identified large productivity gaps between higher-income and lower-income countries. For instance, total productivity of U.S. firms is more than four times larger than some South Asian countries, and 30 times larger than some sub-Saharan African countries.
Income differences between countries can be explained largely by differences in firms’ productivity. As such, identifying policies that are effective in stimulating productivity growth or enabling high-productivity firms to grow larger can have important consequences for poverty alleviation and social mobility.
Bringing rigorous evidence from randomized evaluations to bear in understanding how to generate firms’ growth, and how firms’ growth and size affects workers, their families, and the broader economy, can help inform and improve these policies. At J-PAL, the launch of the new Firms sector represents our commitment to further expand the base of policy-relevant evidence related to this field of research.
- How can we most effectively address differences in productivity between firms, and do so at scale?
- Are policies that alleviate constraints faced by small firms effective at generating employment and reducing poverty, or should we focus on alleviating constraints faced by already-sizeable firms?
- Do policies that promote firms’ employment and productivity lead to increased wages, improved working conditions, and job security for workers?
- Do well-managed and productive firms pollute less?
J-PAL affiliated professors, including our sector co-chairs David and Nick, have investigated these and other related questions for many years, conducting randomized evaluations that focus on the impact of policies and programs that promote firms’ growth and productivity. Some examples include:
- Miriam Bruhn (World Bank) and J-PAL affiliates Dean Karlan (Northwestern) and Antoinette Schoar (MIT) evaluated the impact of access to management consulting services among SMEs in Mexico. They found a positive impact on total factor productivity and return on assets, as well as an increase in entrepreneurial confidence and goal setting.
- J-PAL affiliate Jing Cai (University of Maryland) and Adam Szeidl (Central European University) randomly assigned business managers of different firms to hold monthly meetings for a year. They found that the meetings increased firm revenues and significantly increased profit, factors, inputs, and number of partners, borrowing and management scores.
- J-PAL affiliates Chris Blattman (University of Chicago) and Stefan Dercon (University of Oxford) measured the effects of being offered either an industrial job or an entrepreneurship promotion program. They found that workers offered industrial jobs earned no higher wages than their comparison group, and that industrial jobs carried greater health risks.
- J-PAL affiliates Esther Duflo (MIT), Michael Greenstone (Chicago), Rohini Pande (Harvard), and Nick Ryan (Yale) are evaluating the impact of frequent environmental inspections of high-polluting industrial plants in India, and of removing regulator discretion in selecting plants for inspection.
With new academic chairs and dedicated policy staff, J-PAL’s initial sector efforts will focus on:
Identifying open research questions and working with firms, regulatory agencies and J-PAL affiliates to identify opportunities for new randomized evaluations with the potential to generate policy-relevant evidence that promotes firm growth, worker welfare, and poverty reduction.
Engaging large firms and multinational enterprises to understand and evaluate current practices in raising productivity among existing suppliers and subsidiaries. This could lead to new understanding of firms’ growth or new programs and priorities for intervention designs.
Sharing results of firms-related research as public resources on J-PAL’s website, and continuing the work of J-PAL affiliates already working in this sector.
Producing topic-specific and cross-cutting policy lessons.
Recognizing that private sector firm creation and growth are important drivers of economic progress, J-PAL affiliated professors will focus on generating new ideas and approaches to identify which policies and programs are most effective in encouraging firm growth, and on developing new strategies to measure the impact of growth on employment and poverty reduction.
With the launch of the Firms sector, we look forward to furthering this research agenda and to continuing to work to ensure that, in the spirit of J-PAL’s mission, policies and programs are informed by scientific evidence.