Insights from Firms, Trade, and Development Conference 2024

How can targeted interventions drive productivity growth in low- and middle-income countries (LMICs)? What roles do environmental regulations, migrant networks, digital technology, and market distortions play in shaping economic outcomes? These were some of the questions explored at the 2024 Firms, Trade, and Development Conference, co-hosted by the Yale Economic Growth Center (EGC)  and the International Growth Centre (IGC).

Held on 24-25 October, the conference gathered over 100 participants, including economists, policymakers, and industry leaders, to discuss new research on how firms in LMICs respond to market dynamics and the role of policy in fostering growth. This was the second year running that the conference was jointly hosted by EGC and IGC, however unlike last year, this year the event was held in person at Yale. Organised by Penny Goldberg, Amit Khandelwal, Lauren Falcao Bergquist, and Mayara Felix, the conference also featured an Academic Committee with members from MIT, University of Warwick, and Ashoka University.

With notable speakers like Arvind Subramanian (Peterson Institute for International Economics), alongside a policy panel featuring Camilla Sacchetto (Economist, World Bank), Tim Dobermann (IGC Research Director), Abigayle Davidson (ANDE), and Christian Lippitsch (IGC Rwanda), this year’s conference emphasised translating rigorous research into actionable insights.

Russell Morton, an EGC Postdoctoral Associate for the Markets and Development initiative, highlighted recent research trends on firms and development in a pre-conference blog post, emphasising how workplace improvements and digital tools can drive productivity and broader economic growth.

The 2024 conference showcased diverse themes, from digital adoption and migrant networks to environmental and market policies, offering insights into transformative policies for LMICs. 

24 October: Understanding market distortions, productivity, and growth

The conference started with discussing the microeconomic foundations of development, focusing on understanding market distortions, economic slack, and productivity growth in LMICs.

The incidence of distortions

David Atkin’s study examines how economic issues like taxes, borrowing limits, and market power reduce efficiency and impact social groups unequally in Chile. Poorer households face higher prices and lower wages, while wealthier ones, often owning businesses, may benefit. This research shows how these distortions not only slow growth but also widen inequality.

Slack and economic development

Tilman Graff presented his study on “slack” which reveals that 20% of businesses in Kenya operate at only 75% capacity, often due to low demand in rural areas. By giving cash transfers to these businesses, the researchers found that they could reduce slack and improve resource use. This suggests that increasing demand in poorer areas can boost productivity and growth without needing new investments in equipment or workers.

Opening the brown box

Lakshmi Naaraayanan’s research shows that strict pollution laws in India reduce pollution but also discourage new businesses, leading to 12% fewer startups and 5% fewer product types, especially in high-pollution industries. To stay profitable, firms focused on more lucrative products, reducing product variety overall.

Regulating foreign suppliers

Ninon Moreau-Kastler examined the effects of US regulations, like the Dodd-Frank Act, on the use of conflict minerals. Her findings show a 20% reduction in conflict minerals sourced from African war zones, though some companies bypassed the law by sourcing from countries with weaker regulations. This study reveals both the strengths and limitations of regulatory approaches.

Labour productivity impacts of air purifiers

Maulik Jagnani’s study on air quality improvements in Bangladeshi factories found that providing air purifiers increased labour productivity by 10%. The experiment showed that better air quality reduced worker fatigue and absenteeism, suggesting that workplace health investments can yield significant productivity benefits, particularly in high-pollution areas.

Impacts of roads on structural transformation and businesses

Wei Qian’s analysis of road infrastructure in China and India shows uneven impacts on local business growth. While road improvements spurred business expansion in rural China, they led to a decline in business numbers in industrialised areas of India. This contrast highlights that infrastructure projects have varied effects depending on the existing economic base. 

Trademarks and gains from variety 

Giulia Lo Forte’s research explored how foreign trade affects product variety in the US. Using trademarks as a measure, she found that imports from Chinese-owned firms reduced innovation, while imports from other multinational firms boosted new products. This method revealed that trade's impact on US markets is more complex than previously measured.

Keynote address: New Perspectives on Trade

Delivering the keynote address, Arvind Subramanian discussed what he termed the “Nanoisation” of trade economics, referring to the narrow focus on micro-level issues that can sometimes overshadow larger structural challenges. Subramanian reflected how India has experienced economic growth without following traditional structural transformation patterns. He urged researchers and policymakers to adopt a broader perspective that considers the systemic forces shaping development in LMICs.

“We need to look beyond the micro-level frictions and understand the larger forces at play, particularly in countries like India that don’t fit traditional growth models.” - Arvind Subramanian

25 October: Macroeconomic trends, policy implications, and new frontiers

The second day of the conference broadened the scope to encompass macroeconomic trends, policy implications, and emerging research frontiers in development economics.

Habit formation in labour supply

Yogita Shamdasani’s study on labour attendance in India’s informal sector found that small attendance bonuses boosted worker attendance by 23%, with lasting effects even after payments stopped. However, disruptions like family obligations quickly reduced attendance, suggesting that consistent incentives are key to maintaining work habits.

Benefits and costs of migrant networks

Yulu Tang’s research on migrant networks in China’s food delivery industry found that workers who clustered with hometown peers became more productive, but wage competition increased during hometown crises, causing a 10% wage decline. This study underscores the balance needed between the benefits and challenges of migrant networks in urban labour markets.

The effect of immigration enforcement abroad on immigrants’ home-country firms

Daniel Osuna’s job market paper on US deportations to Mexico revealed unexpected benefits for local economies. Regions with higher deportation rates saw an increase in business creation and revenue, as deportees brought back skills and resources gained in the US, leading to business growth in their home communities. 

Asymmetric information and digital technology adoption

Deivy Houeix’s research examined the effects of digital payment adoption in Senegal’s informal taxi industry. When drivers’ digital transactions were transparent to taxi owners, driver effort increased by 29%, but many initially resisted due to privacy concerns. With privacy assurances, adoption nearly doubled, highlighting the need for a balance between transparency and privacy to encourage digital uptake.

Measuring and estimating retail productivity

Ajay Shenoy introduced a new estimator for retail productivity that examines customer attraction, inventory management, and product selection. His study in Zambian shops showed that focusing only on one area of productivity can give misleading results, stressing the need for a balanced approach in policy targeting retail sector growth.

Returns to capital for whom?

Jiayue Zhang’s study in Ghana explored the effects of cash transfers on small firms, finding that both business owners and workers invested in equipment, leading to 12% higher business earnings and an 8% wage increase. This research challenges the view that only owners contribute to firm growth, highlighting workers as key investors too.

Panel discussion: Shaping policy through evidence

A panel of distinguished policy researchers and practitioners gathered for the "From Research to Action: Shaping Policy Through Evidence" session at Yale, discussing the translation of research into impactful policy interventions for LMICs.

Camilla Sacchetto (World Bank, formerly IGC Jordan) stressed the need to build trust with policymakers and align research with local contexts, drawing from her work in Jordan. Christian Lippitsch (IGC Rwanda) shared insights on export promotion in Rwanda, stressing the value of context-specific, adaptable interventions. Tim Dobermann (IGC Research Director) discussed IGC’s demand-driven model, which tailors research to directly address the specific needs of policymakers in LMICs.

Abigayle Davidson (ANDE) highlighted the importance of making research accessible and relevant to small businesses that drive job creation, noting, “It is essential not just to generate evidence, but to make sure it’s accessible, actionable, and aligned with policymakers’ priorities.” She emphasised clear communication to bridge research and policy effectively.

The panel highlighted the importance of trust, responsive research, and clear communication to foster meaningful change in LMICs.

Looking forward

The 2024 Firms, Trade, and Development Conference showcased how firms, markets, and policy shape economic outcomes in LMICs. Researchers highlighted the impact of demand-side policies, like cash transfers, on productivity by reducing resource underutilisation. Topics spanned economic distortions, slack, environmental regulation, and digital technology, underscoring the importance of evidence-based, context-sensitive policies for inclusive growth.

As economics tackles global challenges, insights from this conference point toward new directions for research and policy. We look forward to continuing these discussions at next year’s conference.

This article was published in collaboration with Yale’s Economic Growth Center.