WT Week 6 Flashcards
Motivation
Bassi et. Al (2022)
examines how small manufacturing firms in Uganda can increase their scale and adopt modern technology through rental market interactions
Theory
Bassi et. Al (2022)
We develop an equilibrium model of firm behavior to quantify the effects of the rental market on mechanization and productivity. The model captures the decision-making process of managers regarding mechanization, machine ownership, and rental market participation, considering transaction costs and labor market frictions.
Special settings
Bassi et. Al (2022)
“one of the reasons for a gap in productivity between developing and developed countries is slower adoption of modern tech within production (expensive). Paper suggests how small firms can overcome financial barriers to adopt such technology.
- In many developing countries, small firms tend to cluster together in informal settings - machinery can be rented and shared. Paper explores how these informal clusters enable firms to collectively overcome the limitations of their small scale.”
Empirical design
Bassi et. Al (2022)
“survey of over 1000 manufacturing firms in Uganda (carpentry, metal fabrication, and grain milling sectors).
- survey collected data on the types of capital, labor, and managerial inputs used in productions. uncovered presence of an active rental market for large production machines among these small firms
- model the effect of rental market on productivity improvements, accounting for transaction costs associated with renting machinery.
- firms with better managerial expertise may be more likely to rent machinery, and are correlated to higher productivity _ OVB issue. The issue is controlled for using fixed effects.”
Data
Bassi et. Al (2022) :
Our study surveys over 1,000 firms in urban Uganda, focusing on carpentry, metal fabrication, and grain milling. We collect detailed data on capital, labor, and managerial inputs, including machine ownership, rental practices, and production processes. This data provides a comprehensive view of how firms in these sectors operate and mechanize.
Key findings
Bassi et. Al (2022)
“<10% of carpentry firms own a thickness planer (crucial machine) but ~50% rent one
- mechanization, facilitated through the rental market, is strongly correlated with higher firm productivity.
- transaction costs associated with renting machinery ~43%. But benefits outweigh costs.
- Eliminating transaction costs in the rental market could increase mechanization by 192%, labor productivity by 12.4%, and output by 17.5%”
**
Interpretation / policy implications
Bassi et. Al (2022)
“reduce transaction costs associated with renting. e.g development of platforms that facilitate easier connections between machine owners and renters
- subsidies for buying or renting machinery, given evidence of productivity improvements
- better regulatory frameworks that govern rental agreements between machinery owners and renters”
Motivation
Market Integration, Demand, and the Growth of Firms: Evidence From a Natural Experiment in India (Jensen and Miller, 2018)
To understand whether the introduction of mobile phones will lead to better upstream market integration and improve market efficiency (prices/productivity/firm size)
Special settings
Market Integration, Demand, and the Growth of Firms: Evidence From a Natural Experiment in India (Jensen and Miller, 2018)
“Firms in developing countries generally start small and stay small. Often significant range of productivity, despite competition suggesting less productive firms are driven out.
Significant variance between firms on lifespan of boats (due to skill levels); boats which cost half that of others (boat*year) - fishermen poorly informed on these consumption decisions regarding quality
Nearly all fishermen bought their boats from the nearest builder (typically in the same village)”
Theory
Market Integration, Demand, and the Growth of Firms: Evidence From a Natural Experiment in India (Jensen and Miller, 2018)
“Lack of market integration for firms, including through information frictions.
Argue that firms are often unable to sell beyond a local market in part as its difficult for consumers to learn about the existence and quality of different firms’ output. Leads to consumers buying from local producers, and producers only selling to local buyers.
Limited space to grow and prevents from exploiting economies of scale.
Channels:
Labour market: lowering trade barriers leads firms to expand and increases demand for domestic labour, therefore raising its price. In this costlier environment, only the most efficient firms can survive
Pro-competitive: opening a market to trade introduces foreign firms as additional competitors. Domestic industries no longer able to enjoy secure rents arising from barriers to entry in local market, so will have to become more competitive (lowering prices and markups)”
Empirical design
Market Integration, Demand, and the Growth of Firms: Evidence From a Natural Experiment in India (Jensen and Miller, 2018)
“Use 6 years of semi-annual censuses of boat builders and surveys of boat buyers (fishermen) to examine artisanal fishing boat manufacturing industry in Kerala, India.
Looking at role of integration in downstream market leads to integration in upstream markets for boats.
Natural experiment:
Spread of mobile phones led to fishermen selling outside of local markets. As they went to different markets to sell fish, they learnt of quality of non-local builders and began to buy non-local boats. Exogenous shock to market integration and potential market size in upstream market for boats.”
Data
Market Integration, Demand, and the Growth of Firms: Evidence From a Natural Experiment in India (Jensen and Miller, 2018)
Micro-level census data of firms (including detailed measures of the production process such as worker-time allocation and specialisation)
Key findings
Market Integration, Demand, and the Growth of Firms: Evidence From a Natural Experiment in India (Jensen and Miller, 2018)
“Increased integration in fish market created large spillovers on boat market integration
Highest quality (longest boat life expectancy) builders gained market share and grew in size, while lowest quality lost market share - many ultimately exited –> average quality improved and industry changed from many small firms to few larger firms; decreased by 60% by end of sample period, with surviving firms growing (output, market share, employees)
Gains in efficiency as firms grew so could exploit economies of scale; produced ~same number of boats with 25% fewer labour hours and 37% less capital
Price per year of boat-life purchased declined by 23%”
Interpretation / policy implications
Market Integration, Demand, and the Growth of Firms: Evidence From a Natural Experiment in India (Jensen and Miller, 2018)
“Despite only studying one industry in one country, believe key features (small manufacturers) are common to many industries in developing countries
Likely that limited spatial competition due to barriers to trade play a role in the difference of of productivity”
Special settings
Bassi et. Al (2023)
“traditional views attribute the small size of Sub-Saharan African firms to poor managerial skills or financial constraints
- Understanding the internal organization of these firms and the role of product customization in limiting labor specialization offers new insights into the challenges of scaling up businesses in developing countries”
Motivation
Bassi et. Al (2023)
explores the barriers to labor specialisation within manufacturing firms in Uganda which contributes to keeping these firms small, even in the absence of external constraints like poor managerial skills or financial limitations.
Theory
Bassi et. Al (2023)
To develop our argument, we conduct a survey of three manufacturing sectors in Uganda and interpret the evidence through the lens of an equilibrium model in which entrepreneurs hire workers and assign them to tasks. The survey measures time use within the firm and shows that labor specialization is limited across the size distribution, especially so in the two sectors where product customization is more prevalent. The estimated model allows us to quantify the internal organization of firms and its implications for the aggregate economy. We find that our setting is close to self-employment within the firm, a benchmark in which expanding the firm is akin to adding a self-employed individual whose productivity is independent of the entrepreneur’s. The primary reason why firms exist is thus not to leverage the talent of entrepreneurs, but possibly simply to share fixed production costs. We then show that given this internal organization, the returns to conventional supply-side interventions are dampened.
Key findings
Bassi et. Al (2023)
“limited labour specialisation within firms across all sizes, challenging the notion that larger firms exhibit greater division of labor.
- Product customisation limits firm specialisation. Complicates the production process, difficult to delegate tasks efficiently within firm. Grain milling greater labor specialisation compared to carpentry and welding
- some firms close to an extreme benchmark scenario - operate as collections of self-employed individuals sharing a production space. Significant barriers to leveraging individual skills through labor specialisation.”
Empirical design
Bassi et. Al (2023)
“survey of over 1000 manufacturing firms in Uganda (carpentry, metal fabrication, and grain milling sectors).survey collects time-use data, detailing the tasks performed by both entrepreneurs and their employees during work hours
- identification strategy relies on the variation in product customisation demands (tailoring product to individual customer needs) across different sectors and sizes e.g grain milling vs carpentry. Observe how such demands influence labor specialisation and firm productivity.”
Data
Bassi et. Al (2023)
Our sample consists of about 1,000 firms in carpentry, welding, and grain milling. These three sectors account for approximately 30% of total manufacturing employment in Uganda. The sample is representative across the entire size distribution, allowing us to document the organization of production in both small and relatively large firms—at least by East African standards. The key innovation of our data collection is to measure time use within the firm. For both the entrepreneurs and their employees, we gather data on which tasks they perform during each hour of the workday. The set of possible tasks includes “production tasks” (e.g., specific step performed in the production process) as well as “non-production” ones (e.g., interacting with customers, supervision, input procurement). To our knowledge, this data is unique, at least in a developing country context. In addition, we collected detailed data on firm characteristics, the production process for specific products, and interactions with customers.
Interpretation / policy implications
Bassi et. Al (2023)
“traditional supply-side interventions aimed at enhancing managerial skills or alleviating financial constraints might have muted effects on firm growth in environments where product customization and consequent barriers to labor specialization prevail.
- need for policies that encourage product standardization or connect firms to broader markets where standard products can be more viable.”
