Search frictions and firm and market growth in Liberia

Introduction

The goal of the study is to understand information frictions between large buyers and their potential suppliers in Liberia. While a lot of tenders are published, it appears that some suppliers have an “information deficit” – e.g., that they lack knowledge about how to apply to tenders or believe that it is not possible for them to win tenders – that leads them to not submit bids.

How to search market frictions?

Building Markets is an international non-profit that focuses on bridging the gap between buyers and suppliers. The first goal of our study is to understand the impact of Building Market’s tender bid training on SMEs’ behaviour and outcomes through a randomised control trial. The second part of this study will focus on understanding why some firms don’t take beneficial actions, like seeking out training that is available for free or bidding on government tenders.

Why does this matter?

In nascent private sectors, such as that of Liberia, information frictions – frictions that prevent buyers and sellers that would otherwise engage in welfare enhancing trade from “finding each other” – are likely large. Capable suppliers lack ways of documenting their abilities and knowledge on how to access bigger contracts. In this project we will attempt to quantify the effect of (some forms of) information frictions on trade lost to Liberian SMEs, and the effect of specific policy measures for reducing information frictions.

Policy impact

This project will inform policymakers in Liberia and other similar countries to what extent training in how to bid on large contracts can increase firm growth.  The project will help understand why some SMEs apply to fewer tenders, win fewer contracts and don’t take actions that could benefit them. The project will also help non-profits and NGOs in these countries design more efficient training.