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Achieving Scale Collectively

Author

Listed:
  • Vittorio Bassi
  • Raffaela Muoio
  • Tommaso Porzio
  • Ritwika Sen
  • Esau Tugume

Abstract

Many firms in developing countries could be too small to adopt modern technology embodied in expensive production machines. This paper shows that rental market interactions allow these small firms to increase their effective scale and mechanize production. We conduct a survey of manufacturing firms in Uganda, which uncovers an active rental market for large machines between small firms in informal clusters. We then build an equilibrium model of firm behavior and estimate it with our data. We find that the rental market is quantitatively important for mechanization and productivity since it provides a workaround for other market imperfections that keep firms small. The rental market also shapes the effectiveness of development policies to foster mechanization, such as subsidies to purchase machines. Overall, our results point to the importance of taking into account firm‐to‐firm interactions within informal clusters to understand technology adoption in low income countries: focusing on the small scale of firms in isolation might be misleading.

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  • Vittorio Bassi & Raffaela Muoio & Tommaso Porzio & Ritwika Sen & Esau Tugume, 2022. "Achieving Scale Collectively," Econometrica, Econometric Society, vol. 90(6), pages 2937-2978, November.
  • Handle: RePEc:wly:emetrp:v:90:y:2022:i:6:p:2937-2978
    DOI: 10.3982/ECTA18773
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    Cited by:

    1. Dennis Egger & Johannes Haushofer & Edward Miguel & Paul Niehaus & Michael Walker, 2022. "General Equilibrium Effects of Cash Transfers: Experimental Evidence From Kenya," Econometrica, Econometric Society, vol. 90(6), pages 2603-2643, November.
    2. Livia Alfonsi & Oriana Bandiera & Vittorio Bassi & Robin Burgess & Imran Rasul & Munshi Sulaiman & Anna Vitali, 2020. "Tackling Youth Unemployment: Evidence From a Labor Market Experiment in Uganda," Econometrica, Econometric Society, vol. 88(6), pages 2369-2414, November.
    3. Vittorio Bassi & Aisha Nansamba, 2022. "Screening and Signalling Non-Cognitive Skills: Experimental Evidence from Uganda," The Economic Journal, Royal Economic Society, vol. 132(642), pages 471-511.
    4. Morjaria, Ameet & Macchiavello, Rocco, 2022. "Acquisitions, Management, and Efficiency in Rwanda's Coffee Industry," CEPR Discussion Papers 17434, C.E.P.R. Discussion Papers.

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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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