Management practices in the manufacturing sector in Pakistan

• Looking across almost 2,000 firms, researchers find very wide variation in management practices across firms (and areas) within Punjab.

• Pakistan plants have lower average management scores than the US and a higher level of dispersion, suggesting that weakly managed firms exit more slowly in Pakistan.

• Establishments with higher management scores are significantly more productive, profitable, and grow faster. A one standard deviation increase in the management score is associated with 21% higher labour productivity – almost identical to the US.

• As found in other countries, well managed firms are larger, more skilled, more likely to export, and older. Controlling for these other factors, publicly listed firms have significantly lower management scores that other ownership types, which is different from other countries.

Recent literature has documented surprising differences in firm-level performance between and within developing and more developed countries (Syverson 2011, Hsieh and Klenow 2009, Joner and Romer 2010). Poor management practices are likely an important factor behind the lower levels of development in Asia, Africa, and Latin America, hampering the manufacturing sector’s ability to innovate, exploit new technologies, and react to the challenges and opportunities of globalisation.

In partnership with the State Bank of Pakistan and the Pakistan Bureau of Statistics, our project undertook the first rigorous empirical analysis of the determinants of management practices in a developing country by extending the large scale US Census Bureau Management and Organizational Practices Survey (Bloom, Brynjolfsson, Foster, Jarmin, Saporta-Eksten, and Van Reenen 2013) to Pakistan, a country which has recently graduated to lower-middle income classification. With joint support from the IGC and the Private Enterprise Development for Low-Income Countries (PEDL) initiative, we collected management data in 2,000 firms in Punjab, Pakistan. The focus was to document how firms are managed in Pakistan and whether their management practices vary with size, industry type, financials particulars, and performance indicators.

An analysis of firms in Pakistan will also allow us to (1) identify the strengths and weaknesses in management practices in Punjab and explore ways in which firms in Pakistan can potentially emulate the development paths of firms in other Asian middle income countries, and (2) understand the mechanisms of firm upgrading through improved management quality and suggest stronger research and policy recommendations for stimulating growth.