Ideas for growth session 4: Firm Capabilities

Rocco Machiavello (Warwick University) presented his preliminary research on the financing of coffee washing stations – the type of firms at the 1st stage of processing coffee subsequent to harvesting. His results suggested that farmers within the coffee production chain were credit constrained. Possible remedies could be improving trust between farmers and other firms up the value chain – unit costs of washing stations were associated with higher local trust between parties in the value chain. Possible policy implications are government regulation and management of the types of contracts, downstream buyers paying collateral for the upstream constrained producers, vertical integration and other models.

Nick Bloom (Stanford University) explored the question –‘Are developing countries held back by their management practices?’ Building on much of his body of studies on international management practices data and surveys he explains that management practices have been found to play an important role in economic growth, via increasing the productivity of firms. He carried out a randomised experiment, with the results suggesting that poor management practices may be attributed to competition being restricted in many developing countries (protectionist policies) as well as information on best practices not being available to these local managers. Possible policies to remedy this could be better laws allowing firms to expand, export etc, as well as promotion of trade and FDI which will bring the good management practices to light and pushing better firms to the frontier through competition.

Chris Blattman (Columbia University) presented preliminary results from an on-going study on the effects of industrialisation on workers in Africa. Full results will be available by mid-2014.

In the second half of the session, Chris Woodruff (IGC) discussed the plan for Phase II of IGC’s firm capabilities research programme and a panel discussion ensued. John Sutton (LSE) brought up the dearth of research in 3 areas: the effect of national investment agencies on growth and the particular mechanisms, local content units’ effectiveness and, further investigation in FDI data research at the actual plant level. Khairuzzaman Mozumder (Ministry of Commerce, Bangladesh) highlighted the lack of capacity in firms and in lending institutions as a common restraint to productivity, anti-export biases in policy and a lack of fiscal incentives for firms as well as other regulatory barriers. Sajid Minhas (Delta Garments) also mentioned a lack of sophisticated regulatory framework that differentiates garment manufacturers vs textile ones and the implementation of VAT refunds being lacking. A lack of R&D in technology and management practices was cited as a possible challenge.