Ideas for growth session 7: Firm capabilities

Chaired by Chris Woodruff (University of Warwick; IGC), the well-attended session on Firm Capabilities was opened by Margaret McMillan (Tufts) who presented research on the impact of China on the Ethiopian leather industry , which has significant untapped potential as it is currently inefficient with outdated technology. Foreign investment is increasing. Key research questions were how active Chinese investment is in the leather value chain, and whether foreign firms are operating in isolation or if they are integrating with Ethiopian firms and people. Using survey methodology the research showed technology transfer, networking, and training occurring between Ethiopian and foreign firms.

Jonas Hjort (Columbia) presented on the topic of ethnic division and production in firms in Kenya. Research on the effect of ethnic heterogeneity in the private sector in developing countries is largely absent, so this research addresses whether ethnic discrimination distorts supply chains. Results suggest that teams made up of multiple ethnicities have lower output, with conflict increasing taste-based discrimination, and thus also increasing the difference in output between homogeneous and mixed ethnicity teams. Introducing team pay structures may help to reduce this gap. His research suggests that a non-taste-based explanation for lower output in mixed teams is unlikely and that taste-based discrimination responds to the macro-level political environment.

Oriana Bandiera (LSE) presented research on how CEOs use their time in India. The research sampled 364 CEOs of listed Indian manufacturing firms, and by collecting time use data found that the average CEO works 39hrs/ week, with the majority of time spent in in-person meetings. Firms’ productivity is higher when CEOs work longer hours but not all CEOs’ time is equally productive. Bandiera focused on the differences between domestically-oriented family firms and those which are multinationals or export-oriented, and showed that style differences in working practices may impact productivity.

Discussant Mulu Gebreeyesus Gebreyohannes (United Nations University) highlighted the practical policy concerns for the role of FDI in Ethiopia. He queried the overall benefit of FDI to Ethiopia, but suggested that perhaps it’s too early to make definitive conclusions. Discussant Naved Hamid (Lahore School of Economics; IGC) highlighted the interesting result from Hjort’s research that people are willing to discriminate even when it’s of an economic cost to themselves. Lower productivity and lower growth are possible consequences of ethnic conflict, and the micro focus of Hjort’s research is an important area to examine. He also noted the interesting point of the difference between CEO behaviour in domestic versus export-oriented firms.