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The Impact of Consulting Services on Small and Medium Enterprises: Evidence from a Randomized Trial in Mexico

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  • Mariam Bruhn

    ()
    (World Bank)

  • Dean Karlan

    ()
    (Economic Growth Center, Yale University)

  • Antoinette Schoar

    ()
    (Massachusetts Institute of Technology)

Abstract

We test whether managerial human capital has a first order effect on the performance and growth of small enterprise in emerging markets. In a randomized control trial in Puebla, Mexico, we randomly assigned 150 out of 432 small and medium size enterprises to receive subsidized consulting services, while the remaining 267 enterprises served as a control group that did not receive any subsidized training. Treatment enterprises were matched with one of nine local consulting firms and met with their consultants once a week for four hours over a one year period. Results from a follow-up survey, conducted after the intervention, show that the consulting services had a large impact on the performance of the enterprises in the treatment group: monthly sales went up by about 80 percent; similarly, profits and productivity increased by 120 percent compared to the control group. We also see a significant increase in the entrepreneurial spirit index for the treatment group, a set of questions designed to illicit the SME owners’ confidence in their ability to manage their business and deal with any future difficulties. However, we do not find any significant increase in the number of workers employed in the treatment group.

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Bibliographic Info

Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 1010.

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Length: 29 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:egc:wpaper:1010

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Keywords: enterprise growth; entrepreneurship; managerial capital;

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  1. Bloom, Nicholas & Eifert, Benn & Mahajan, Aprajit & McKenzie, David & Roberts, John, 2010. "Does Management Matter?: Evidence from India," Research Papers 2074, Stanford University, Graduate School of Business.
  2. Dean Karlan & Martin Valdivia, 2007. "Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions," Working Papers 107, Center for Global Development.
  3. Dean Karlan & Robert Darko Osei & Isaac Osei-Akoto & Christopher Udry, 2012. "Agricultural Decisions after Relaxing Credit and Risk Constraints," NBER Working Papers 18463, National Bureau of Economic Research, Inc.
  4. Nick Bloom & John Van Reenen, 2010. "Why do management practices differ across firms and countries?," LSE Research Online Documents on Economics 47491, London School of Economics and Political Science, LSE Library.
  5. de Mel, Suresh & McKenzie, David J. & Woodruff, Christopher, 2009. "Measuring microenterprise profits: Must we ask how the sausage is made?," Journal of Development Economics, Elsevier, vol. 88(1), pages 19-31, January.
  6. Nick Bloom & Carol Propper & Stephan Seiler & John Van Reenen, 2010. "Management practices in the NHS," CentrePiece - The Magazine for Economic Performance 305, Centre for Economic Performance, LSE.
  7. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," IZA Discussion Papers 2934, Institute for the Study of Labor (IZA).
  8. Miriam Bruhn & Dean Karlan & Antoinette Schoar, 2010. "What Capital Is Missing in Developing Countries?," American Economic Review, American Economic Association, vol. 100(2), pages 629-33, May.
  9. Morten Bennedsen & Kasper Meisner Nielsen & Francisco Pérez-González & Daniel Wolfenzon, 2007. "Inside the Family Firm: the Role of Families in Succession Decisions and Performance," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 647-691, 05.
  10. Nicholas Bloom & Christos Genakos & Raffaella Sadun & John Van Reenen, 2012. "Management Practices Across Firms and Countries," NBER Working Papers 17850, National Bureau of Economic Research, Inc.
  11. Bruhn, Miriam & Zia, Bilal, 2011. "Stimulating managerial capital in emerging markets : the impact of business and financial literacy for young entrepreneurs," Policy Research Working Paper Series 5642, The World Bank.
  12. Nicholas Bloom & John Van Reenen, 2007. "Measuring and Explaining Management Practices Across Firms and Countries," The Quarterly Journal of Economics, MIT Press, vol. 122(4), pages 1351-1408, November.
  13. Shawn Cole & Thomas Sampson & Bilal Zia, 2011. "Prices or Knowledge? What Drives Demand for Financial Services in Emerging Markets?," Journal of Finance, American Finance Association, vol. 66(6), pages 1933-1967, December.
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