Understanding productivity dispersion: Evidence from a new survey of manufacturing firms in Uganda

Policy brief Firms

  • There are large productivity differences across firms in developing countries, even within the same sector and region. Understanding what contributes to such differences in productivity is important for designing policies to help low productivity firms grow.
  • This project implemented a representative survey of over 1,000 manufacturing firms in Uganda to quantify differences in productivity and understand what drives such differences.
  • The key results from the survey are that:
    • Mechanisation matters: machine usage is the primary factor associated with profitability;
    • Small firms engage in an active firm-to-firm rental market for machines, which enables them to access high-capacity and expensive machines within semi-formal or informal clusters; and
    • While the rental market partly relieves capital constraints, firms still report access to machines as an important challenge.
  • As such, industrial policies facilitating mechanisation seem particularly promising. In particular, this survey suggests that policies should leverage the cooperative nature of firm networks and the existing rental market to increase mechanisation, which could include subsidising machines that can be shared by firms in the cluster.