We will curate readings in a range of thematic areas related to our research. This includes papers, books, blogs, and articles that we think are foundational for a specific topic. In some cases, we will aggregate papers recommended by subject matter experts. 


 

In October 2022, we hosted a workshop on Firm Support Policies. We asked participants to share one or two foundational papers in the area. We include their recommendations here. 

Barriers to Technology Adoption: Evidence from Soccer-Ball Producers in Pakistan

Atkin, D., Chaudhry, A., Chaudhry, S., Khandelwal, A. K., & Verhoogen, E. (2017), Quarterly Journal of Economics, 132(3), 1101-1164

Abstract: This article studies technology adoption in a cluster of soccer-ball producers in Sialkot, Pakistan. We invented a new cutting technology that reduces waste of the primary raw material and gave the technology to a random subset of producers. Despite the clear net benefits for nearly all firms, after 15 months take-up remained puzzlingly low. We hypothesize that an important reason for the lack of adoption is a misalignment of incentives within firms: the key employees (cutters and printers) are typically paid piece rates, with no incentive to reduce waste, and the new technology slows them down, at least initially. Fearing reductions in their effective wage, employees resist adoption in various ways, including by misinforming owners about the value of the technology. To investigate this hypothesis, we implemented a second experiment among the firms that originally received the technology: we offered one cutter and one printer per firm a lump-sum payment, approximately a month’s earnings, conditional on demonstrating competence in using the technology in the presence of the owner. This incentive payment, small from the point of view of the firm, had a significant positive effect on adoption. The results suggest that misalignment of incentives within firms is an important barrier to technology adoption in our setting.

Exporting and Firm Performance: Evidence from a Randomized Experiment

Atkin, D., Khandelwal, A. K., & Osman, A. (2017), Quarterly Journal of Economics, 132(2), 551-615

Abstract: We conduct a randomized experiment that generates exogenous variation in the access to foreign markets for rug producers in Egypt. Combined with detailed survey data, we causally identify the impact of exporting on firm performance. Treatment firms report 16–26% higher profits and exhibit large improvements in quality alongside reductions in output per hour relative to control firms. These findings do not simply reflect firms being offered higher margins to manufacture high-quality products that take longer to produce. Instead, we find evidence of learning-by-exporting whereby exporting improves technical efficiency. First, treatment firms have higher productivity and quality after controlling for rug specifications. Second, when asked to produce an identical domestic rug using the same inputs and same capital equipment, treatment firms produce higher quality rugs despite no difference in production time. Third, treatment firms exhibit learning curves over time. Finally, we document knowledge transfers with quality increasing most along the specific dimensions that the knowledge pertained to.

The Dynamics and Spillovers of Management Interventions: Evidence from the Training within Industry Program

Bianchi, N and Michela Giorcelli (2022), Journal of Political Economy, 130(6): 1630–75.

Abstract: This paper examines the long-term and spillover effects of management interventions on firm performance. Under the Training Within Industry (TWI) program, the US government provided management training to firms involved in war production between 1940 and 1945. Using a newly collected panel data set on all 11,575 US firms that applied to the program, we find that the TWI training had positive and long-lasting effects on firm performance and the adoption of beneficial managerial practices. Moreover, it generated complementarities among different types of training and had positive spillover effects on the supply chain of trained firms.

Does management matter? Evidence from India

Bloom, N., Eifert, B., Mahajan, A., McKenzie, D., & Roberts, J. (2013), The Quarterly Journal of Economics, 128(1), 1-51

Abstract: A long-standing question is whether differences in management practices across firms can explain differences in productivity, especially in developing countries where these spreads appear particularly large. To investigate this, we ran a management field experiment on large Indian textile firms. We provided free consulting on management practices to randomly chosen treatment plants and compared their performance to a set of control plants. We find that adopting these management practices raised productivity by 17% in the first year through improved quality and efficiency and reduced inventory, and within three years led to the opening of more production plants. Why had the firms not adopted these profitable practices previously? Our results suggest that informational barriers were the primary factor explaining this lack of adoption. Also, because reallocation across firms appeared to be constrained by limits on managerial time, competition had not forced badly managed firms to exit.

Proximity to the Frontier, Markups, and the Response of Innovation to Foreign Competition: Evidence from Matched Production-Innovation Surveys in Chile

Cusolito, A. P., Garcia-Marin, A., & Maloney, W. F. (2022), American Economic Review: Insights. Advance online publication

Abstract: This paper employs a matched firm production/innovation panel data set from Chile to explore the response of firm innovation to the increased competition arising from the China shock. The data cover a wider range of innovation inputs and outputs than previously possible and allow generating measures of markups and efficiency (TFPQ) that correspond closely to the concepts of rents and technological leadership envisaged in the Schumpeterian literature. Except for the 10% most productive plants which see an increase in quality, increased competition depresses most measures of innovation. These differences are exacerbated when interacted with plant-level movements in rents.

The Long-Term Effects of Management and Technology Transfer: Evidence from the US Productivity Program

Giorcelli, M. (2019), American Economic Review, 109(1), 121-52.

Abstract: This paper uses a unique historical episode to assess the long-run effects of management and technology transfer on firm performance. During the 1950s, as part of the Marshall Plan, the US administration sponsored management-training trips for European managers to US firms and granted state-of-the-art machines to European firms. I use newly-assembled data on the population of Italian firms eligible to participate in this program, tracked over a twenty-year period. By exploiting an unexpected cut in the US budget, I compare firms that eventually participated in the program with firms that were initially eligible to participate, but were excluded after the budget cut. I find that management transfer significantly increased Italian firms’ survivorship, sales, employment and productivity. These positive effects persisted for at least fifteen years after the program, a finding that can be explained by the increased investment rates, capital-to-labor ratio, more educated managers’ hires, and employees training expenditures in such firms. Companies that received new machines also improved their performance, but the effects were short-lived.

The Long-Term Effects of Management and Technology Transfers

Giorcelli, M (2019), American Economic Review, 109(1): 121–152

Abstract: This paper examines the long-run causal effects of management on firm performance. Under the United States Technical Assistance and Productivity Program (1952–1958), the United States organized management training trips for Italian managers to US firms and granted technologically advanced machines to Italian companies. I exploit an unexpected budget cut that reduced the number of participating firms and find that, compared to businesses excluded by the budget cut: performance of Italian firms that sent their managers to the United States increased for at least fifteen years after the program; performance of companies that received new machines increased, but flattened out over time; management and new machines were complementary.

The effects of business accelerators on venture performance: Evidence from start-up Chile

Gonzalez-Uribe, J. & Leatherbee, M. (2017).. Review of Financial Studies, 31(4), 1566–1603

Abstract: Most research investigating the prevalence of venture capital (VC) investors in innovation clusters focuses on VCs’ value-add to portfolio-companies. We explore the value-add of VCs beyond their portfolios, specifically through due-diligence: the multi-stage process that VCs use to assess companies for investment. We hypothesize that VC due-diligence helps entrepreneurs mitigate their information frictions. We test this hypothesis using data on nearly 2,000 applicants for funding to a seed fund that screens them for due-diligence by quasi-randomly assigning applicants to reviewers. We find supportive evidence that assignment to due-diligence leads to higher growth, possibly through productivity improvements rather than signaling effects.

Failed Venture Capital Fundraising Campaigns and Startup Growth: The Value-Add of Venture Capital Due-diligence

Gonzalez-Uribe, J., Klingler-Vidra, R., Wang, S., & Yin, X. (2022), Working Paper.

Abstract: Do business accelerators affect new venture performance? We investigate this question in the context of Start- Up Chile, an ecosystem accelerator. We focus on two treatment conditions typically found in business accelerators: basic services of funding and coworking space, and additional entrepreneurship schooling. Using a regression discontinuity design, we show that schooling bundled with basic services can significantly increase new venture performance. In contrast, we find no evidence that basic services affect performance on their own. Our results are most relevant for ecosystem accelerators that attract young and early-stage businesses and suggest that entrepreneurial capital matters in new ventures.

Identifying and boosting “gazelles”: Evidence from business accelerators

González-Uribe, J. & Reyes, S. (2021), Journal of Financial Economics, 139(1), 260–287

Abstract: Why is high-growth entrepreneurship scarce in developing countries? Does this scarcity reflect firm capabilities constraints? We explore these questions using as a laboratory an accelerator in Colombia that selects participants using scores from randomly assigned judges and offers them training, advice, and visibility but no cash. Exploiting exogenous differences in judges’ scoring generosity, we show that alleviating constraints to firm ca- pabilities unlocks innovative entrepreneurs’ potential but does not transform subpar ideas into high-growth firms. The results demonstrate that some high-potential entrepreneurs in developing economies face firm capabilities constraints and accelerators can help identify these entrepreneurs and boost their growth.

Improving management with individual and group-based consulting: Results from a randomized experiment in Colombia

Iacovone, L., Maloney, W., & McKenzie, D. (2021), Review of Economic Studies, 89(1), 346–371

Abstract: Differences in management quality are an important contributor to productivity differences across countries. A key question is how to best improve poor management in developing countries. We test two different approaches to improving management in Colombian auto parts firms. The first uses intensive and expensive one-on-one consulting, while the second draws on agricultural extension approaches to provide consulting to small groups of firms at approximately one-third the cost of the individual approach. Both approaches lead to improvements in management practices of a similar magnitude (8–10 percentage points). The group-based intervention leads to significant increases in firm sales, profits, and labour productivity, while the impacts on firm performance are smaller in magnitude and less robust from the individual consulting. The results point to the potential of group-based approaches as a pathway to scaling up management improvements.

Family firms and contractual institutions

Iacovone, L., Maloney, W. F., & Tsivanidis, N. (2019), Policy Research Working Papers.

Abstract: This paper offers new evidence on the relationship between contractual institutions, family management, and aggregate performance. The study creates a new firm-level database on management and ownership structures spanning 134 regions in 11 European countries. To guide the empirical analysis, it develops a model of industry equilibrium in which heterogeneous firms decide between family and professional management when the latter are subject to contracting frictions. The paper tests the model's predictions using regional variation in trust within countries. Consistent with the model, the finding show that there is sorting of firms across management modes, in which smaller firms and those in regions with worse contracting environments are more likely to be family managed. These firms are on average 25 percent less productive than professionally managed firms, and moving from the country with the least reliable contracting environment to the most increases total factor productivity by 21.6 percent. Family management rather than ownership drives these results.

Is the Most Unproductive Firm the Foundation of the Most Efficient Economy? Penrosian Learning Confronts the Neoclassical Fallacy

Lazonick, W (2020), Institute for New Economic Thinking Working Paper.

Abstract: In this essay, I argue that the key characteristic of the innovative enterprise is fixed-cost investment in the productive capabilities of the company’s employees to engage in organizational learning. The purpose of this investment in organizational learning is to develop a higher-quality product than was previously available. When successful, the development of the higher-quality product enables the firm to capture a large extent of the market, transforming high fixed cost into low unit cost. The result is sustainable competitive advantage that enables the growth of the firm, contributing to the growth of the economy as a whole. I argue that to get beyond the neoclassical fallacy, economists have to stop relying on constrained-optimization methodology. Rather, they need to be trained in a “historical transformation” methodology that integrates history and theory. It is a methodology in which theory serves as both a distillation of what we have learned from the study of history and a guide to what we need to learn about reality as the “present as history” unfolds.

Government Incentives for Entrepreneurship

Lerner, J (2022), in Innovation and Public Policy, University of Chicago Press

Abstract/Introduction: In the dozen years since the Global Financial Crisis, there has been a surge of interest on the part of governments in promoting entrepreneurial activity, largely by providing financing. This essay explores these policies, focusing on financial incentives to entrepreneurs and the intermediaries who fund them. The motivation for these efforts is clear: the well-documented relationships between economic growth, innovation, entrepreneurship and venture capital. Yet despite good intentions, many of these public initiatives have ended in disappointment. I argue that these failures have not simply been a matter of bad luck. Instead, the unfortunate outcomes have reflected the fundamental structural issues that make it difficult for governments to launch sustained successful efforts to promote entrepreneurship over sustained periods. I highlight several critical challenges, and outline two principles that might render these efforts more effective.

Genesis at Work: Advancing Inclusive Innovation through Manufacturing Extension

Lowe, N, Greg Schrock, Ranita Jain and Maureen Conway (2021), Local Economy.

Abstract: US manufacturing is struggling with both a productivity and job quality challenge. These challenges are interconnected, reinforcing the need for increased coordination of economic and workforce development efforts. This article outlines the evaluation findings of a novel business-facing initiative called the Genesis Movement, to understand its role in reshaping the workforce experience within small- and medium-sized manufacturing businesses in Chicago, Illinois. Spearheaded in 2014 by the Illinois Manufacturing Excellence Center (IMEC), Genesis starts with the premise that workforce practices are central to business operations, productivity, and competitiveness—and therefore, manufacturing extension services need to promote improvements to job quality in support of long-term business success. This integrated approach represents a form of “inclusive innovation,” expanding the capacities of firms and workers to adapt in a competitive environment where pressures to maintain high quality while reducing costs are ever-present. Firms that participate in Genesis learn to adopt an inclusive organizational culture, using front-line worker engagement, skills training, and job quality improvements to drive performance and process innovation. As such, Genesis offers transferable lessons that could be leveraged by other manufacturing-supporting organizations to benefit their industry clients and the workers they employ.

Convergence to the managerial frontier

Maloney, W. F. & Sarrias, M. (2017).. Journal of Economic Behavior and Organization, 134, 284-306.

Abstract: Using detailed survey data on management practices from the World Management Survey, this paper uses recent advances in unconditional quantile analysis to study the changes in the within country distribution of management quality associated with country convergence to the managerial frontier. It then decomposes the contribution of potential explanatory factors to the distributional changes. The United States emerges as the frontier country because its best firms are far better than those of its close competitors. Part of the process of convergence to the frontier across the development process represents a trimming of the left tail, much is movement of the central mass and, for rich countries and many poor countries, it is actually the best firms that lag the frontier benchmark. Among potential explanatory variables that may drive convergence, ownership and human capital appear most important. These variables lose explanatory power as firm and average country management quality rises. Hence, once in the advanced country range, the factors that improve management quality are less easy to document and hence influence.

Engineering Growth

Maloney, W. F. & Valencia Caicedo, F. (2022), Journal of the European Economic Association, 20(4), 1554-1594.

Abstract: This paper offers the first systematic historical evidence on the role of a central actor in modern growth theory: the engineer. We construct a database on the share of engineers in the labor force during the Second Industrial Revolution (1870–1914) at the county level for the United States and the state and national levels for the Americas. These measures are robustly correlated with income today after controlling for literacy, other types of higher-order human capital (college graduates, lawyers, physicians, patenting) and demand-side factors, as well as after instrumenting engineering using the 1862 US Land Grant Colleges program. Differences in engineering density in 1880 accounted for 10% of the higher US county incomes today, while national disparities in engineering density can explain approximately a quarter of the income divergence in the Americas. To document the mechanisms through which engineering density works, we show how it is correlated with higher rates of technology adoption and structural transformation across intermediate time periods and with numerous measures of the knowledge economy today.

Learning to learn: Experimentation, entrepreneurial capital, and development

Maloney, W. F., & Zambrano, A. (2021), Policy Research Working Papers.

Abstract: This paper models an entrepreneur's choice between investing in a safe activity or experimenting with a new risky one, and how much to invest in the “entrepreneurial capital” that would permit more effective use of the arriving information on the latter- how much to learn how to learn. Optimal investment in entrepreneurial capital depends the expected return on the risky activity. It can lead to three learning regimes, two of which can generate a development trap where firms and countries are unable to assess the potential of newly arriving technologies and hence grow more slowly. The first arises purely because it is too expensive to learn to learn, the second because the returns to the new activity are so high that they obviate the need to distinguish between activities and hence invest in entrepreneurial capital. The paper draws on historical evidence to show how the model offers insights into three understudied features of the industrialization process in the Western Hemisphere at the beginning of the 20th century: the disproportionate influence of immigrant/foreign entrepreneurs in driving industrialization in Latin America; the emergence of selective exceptions to this pattern, as well as episodes of entrepreneurial retrogression; and the differing effects of similar economic structures across countries that suggest the possibility of a learning-displacing resource curse. The model can simulate the respective decline and boom in the Chilean and US copper industries at the turn of the century, arising either from initially high relative returns or low initial endowments of entrepreneurial capital in the latter.

Identifying and Spurring High-Growth Entrepreneurship: Experimental Evidence from a Business Plan Competition

McKenzie, D. (2017), American Economic Review, 107(8), 2278-2307

Abstract: Almost all firms in developing countries have fewer than ten workers, with a modal size of one. Are there potential high-growth entrepreneurs, and can public policy help identify them and facilitate their growth? A large-scale national business plan competition in Nigeria provides evidence on these questions. Random assignment of US$34 million in grants provided each winner with approximately US$50,000. Surveys tracking applicants over five years show that winning leads to greater firm entry, more survival, higher profits and sales, and higher employment, including increases of over 20 percentage points in the likelihood of a firm having ten or more workers.

Firm-level upgrading in developing countries

Verhoogen, E. (2022), Journal of Economic Literature. Advance online publication

Abstract: In principle, firms in developing countries benefit from the fact that advanced technologies and products have already been developed in industrialized countries and can simply be adopted, a process often referred to as industrial upgrading. But for many firms this advantage remains elusive. What is getting in the way? This paper reviews recent firm-level empirical research on the determinants of upgrading in developing countries. The first part focuses on how to define and measure various dimensions of upgrading—learning, quality upgrading, technology adoption, and product innovation. The second part takes stock of recent evidence on the drivers of upgrading, classifying them as output-side drivers, input-side drivers, or drivers of know-how. I conclude with some thoughts about promising directions for research in the area.