How Can We Learn Whether Firm Policies are Working in Africa? Challenges (and Solutions?) for Experiments and Structural Models

26 Pages Posted: 20 Apr 2016

See all articles by David J. McKenzie

David J. McKenzie

World Bank - Development Research Group (DECRG); IZA Institute of Labor Economics

Date Written: April 1, 2011

Abstract

Firm productivity is low in African countries, prompting governments to try a number of active policies to improve it. Yet despite the millions of dollars spent on these policies, we are far from a situation where we know whether many of them are yielding the desired payoffs. This paper establishes some basic facts about the number and heterogeneity of firms in different sub-Saharan African countries and discusses their implications for experimental and structural approaches towards trying to estimate firm policy impacts. It shows that the typical firm program such as a matching grant scheme or business training program involves only 100 to 300 firms, which are often very heterogeneous in terms of employment and sales levels. As a result, standard experimental designs will lack any power to detect reasonable sized treatment impacts, while structural models which assume common production technologies and few missing markets will be ill-suited to capture the key constraints firms face. Nevertheless, the author suggests a way forward which involves focusing on a more homogeneous sub-sample of firms and collecting a lot more data on them than is typically collected.

Keywords: Microfinance, Small Scale Enterprise, E-Business, ICT Policy and Strategies, Banks & Banking Reform

Suggested Citation

McKenzie, David John, How Can We Learn Whether Firm Policies are Working in Africa? Challenges (and Solutions?) for Experiments and Structural Models (April 1, 2011). World Bank Policy Research Working Paper No. 5632, Available at SSRN: https://ssrn.com/abstract=1808574

David John McKenzie (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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