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How can we learn whether firm policies are working in africa ? challenges (and solutions?) for experiments and structural models
 
Author:McKenzie, David; Collection Title:Policy Research working paper ; no. WPS 5632
Country:Africa; Date Stored:2011/04/12
Document Date:2011/04/01Document Type:Policy Research Working Paper
Language:EnglishRegion:Africa
Report Number:WPS5632SubTopics:Small Scale Enterprise; Banks & Banking Reform; Microfinance; E-Business; ICT Policy and Strategies
Volume No:1 of 1  

Summary: 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.

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