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Increasing Access to Training, Capital andNetworks
Two Planned Field Experiments with Small Firms inUganda
Sarojini Hirshleifer, University of California, RiversideArman Rezaee, University of California, Davis
Benjamin Kachero, Office of the Prime Minister, Uganda
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 1 / 18
Motivation
Firm productivity is low in developing countries (Syverson, 2011)
Small and medium enterprises (SMEs) form a large share of theeconomic activity in most developing economies
90% of private sector production in Uganda (less than 50 employees)
Small firms in developing countries face a range of constraints: credit,information, etc
This study focuses on small firms in a capital intensive industry:metal fabrication
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 2 / 18
Motivation
Firm productivity is low in developing countries (Syverson, 2011)
Small and medium enterprises (SMEs) form a large share of theeconomic activity in most developing economies
90% of private sector production in Uganda (less than 50 employees)
Small firms in developing countries face a range of constraints: credit,information, etc
This study focuses on small firms in a capital intensive industry:metal fabrication
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 2 / 18
Motivation
Firm productivity is low in developing countries (Syverson, 2011)
Small and medium enterprises (SMEs) form a large share of theeconomic activity in most developing economies
90% of private sector production in Uganda (less than 50 employees)
Small firms in developing countries face a range of constraints: credit,information, etc
This study focuses on small firms in a capital intensive industry:metal fabrication
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 2 / 18
Motivation
Firm productivity is low in developing countries (Syverson, 2011)
Small and medium enterprises (SMEs) form a large share of theeconomic activity in most developing economies
90% of private sector production in Uganda (less than 50 employees)
Small firms in developing countries face a range of constraints: credit,information, etc
This study focuses on small firms in a capital intensive industry:metal fabrication
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 2 / 18
Barriers to Growth: Capital-Intensive SmallFirms
Knowledge constraints: Highly technical production processes
Evidence that agents fail to recognize key inputs into production(Hanna et al, 2015; Beaman et al, 2014)Firms likely to underinvest in worker training (Acemoglu and Pischke,1998)Success of (informal) technical training on quality/novelty (Atkin et al,2014; Hardy and McCasland, 2016)
Lack of economies of scale to use capital
Positive individual capital shocks (de Mel et al, 2008)Small firms may not efficiently use high-cost capital
Coordination Failures
Difficult for firms to coordinate and generate economies of scale
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 3 / 18
Barriers to Growth: Capital-Intensive SmallFirms
Knowledge constraints: Highly technical production processes
Evidence that agents fail to recognize key inputs into production(Hanna et al, 2015; Beaman et al, 2014)Firms likely to underinvest in worker training (Acemoglu and Pischke,1998)Success of (informal) technical training on quality/novelty (Atkin et al,2014; Hardy and McCasland, 2016)
Lack of economies of scale to use capital
Positive individual capital shocks (de Mel et al, 2008)Small firms may not efficiently use high-cost capital
Coordination Failures
Difficult for firms to coordinate and generate economies of scale
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 3 / 18
Barriers to Growth: Capital-Intensive SmallFirms
Knowledge constraints: Highly technical production processes
Evidence that agents fail to recognize key inputs into production(Hanna et al, 2015; Beaman et al, 2014)Firms likely to underinvest in worker training (Acemoglu and Pischke,1998)Success of (informal) technical training on quality/novelty (Atkin et al,2014; Hardy and McCasland, 2016)
Lack of economies of scale to use capital
Positive individual capital shocks (de Mel et al, 2008)Small firms may not efficiently use high-cost capital
Coordination Failures
Difficult for firms to coordinate and generate economies of scale
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 3 / 18
Implementer
Implementing partner: Innovation Systems and ClustersProgramme-Uganda (ISCP-U)
Operated by Makerere University
ISCP-U is an initiative that intends to support SME growth in a rangeof sectors by:
Support knowledge transfer between Makerere and SMEsCreate linkages across SMEs by forming peer groupsProvides some support to SMEs in the form of training or shared capital
Metal fabrication is a renewed area of focus for ISCP-U
Promising sector for implementation of an RCT–many firms located inurban areas
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 4 / 18
Typical Metal Fabrication Firms in Uganda
Wait for customers to stop by
Doors, window frames, bed frames are made to order
Small firms with less than 10 employees
Employees are typically paid by the job
Limited capital
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 5 / 18
Typical Workshop
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 6 / 18
Capital
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 7 / 18
Typical Outputs: Enclosures
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 8 / 18
Needs/Barriers Assessment
Conducted 15 focus groups
Barriers to seeking technical training
Most firms owners have no experience since they were traininginformallyUnsure of needs/returnsEmployee turnover is already a major issueTrainings are not targeted to those already working/those with limitededucation
Barriers to accessing capital
Fear of bank loans: belief that they will lose their businessInability to fill out paperwork
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 9 / 18
Standardized ISCP-U Intervention
Goal : Develop a standardized sustainable version of the intervention thatincreases productivity in capital-intensive small enterprises by:
1 Providing technical training to increase productivity:
Currently being developed at Makerere by ISCP-U
2 Creating firm clusters (peer groups/exogeneous business netoworks)to faciliate use of shared capital
3 Providing shared capital to each cluster
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 10 / 18
Research Questions: Part I
Technical Training and Productivity
Does technical training increase observed productivity focused onefficiency?
Does technical training increase profits?
Do wages of trained employees respond?
Are trained employees more likely to leave?
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 11 / 18
Research Questions: Part II
Clusters and Economies of Scale
Can firms successfully share capital?
Does shared capital result in increased efficiency relative to individualcapital?
Do social preferences (trust, trustiworthiness) predict the success ofthe intervention?
Does sharing capital and participating in the cluster result inincreased cooperation/knowledge transfers/risk sharing?
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 12 / 18
Experimental Design
Phase I: Provide technical trainingMeasure outcomes for one year
Phase II: Test shared capital v. individual capitalSome firms will be selected to receive capital and some will be selectedto receive individual capital
Year Sequence
1 Training Training Control Control
2 Training Shared Capital Shared Capital Control
Number of Firms 100 100 100 100
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 13 / 18
Complementary study of time preferences inwork groups
Present bias can affect productivity at work (Kaur et al, 2016; Callenet al, 2016)
We know little about how the present bias of individuals affectsproductivity in teams
Research Questions:
Does one present-biased worker on a team slow the production processdown?If workers can chose–do they prefer to avoid present biased workers?Do firm owners have accurate beliefs about worker productivity?
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 14 / 18
Data collection and outcomes
1 Census Survey
identify SMEs who are interested in training and have at least twoemployees
2 Baseline Survey: standard questions +
Measure observed productivityTrust of firm owners, self-control of workers
3 Intermediate Outcomes
Business practices (including record keeping, management andregistration)Potential productivity (as measured post-training)
4 Follow-up Surveys
Productivity per inputs (labor, raw materials and capital usage)ProfitsSurvival
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 15 / 18
Pilot
Currently starting a pilot of 60-75 firms
Allow the implementing partner to develop the program
Gain an understanding of stated interested v. actual take-up
Develop real productivity measures
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 16 / 18
Threats
Positive spillovers on control:
Knowledge sharing across firms: Measure and control for it
Negative spillovers on control: reallocating customers
Use productivity as an outcome measure: increased efficiency leads tototal welfare effect
Take-up:
Will test in pilotISCP-U has historically had high take-up
Competition
Firms claim to interested in collaborating and project backgroundsuggests that it can work
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 17 / 18
Broader relevance and unanswered questions
Small firms in capital-intensive industries are common in developingcountries
Potentially face similar constraints: economies of scale/lack oftechnical knowledge
Firm cluster initiatives that rely on shared capital are anecdotallyquite common in Uganda and have been supported by a range ofgovernment and international organizations
ICSP-U intervention is perceived to be successful and study visits forgovernments across Sub-Saharan Africa are common
Broader question is what will cluster management structure ensurelong-term sustainablity
Sarojini Hirshleifer, University of California, Riverside Arman Rezaee, University of California, Davis Benjamin Kachero, Office of the Prime Minister, UgandaIncreasing Access to Training, Capital and Networks 18 / 18