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Business Practices in Small Firms in Developing Countries

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  • McKenzie, David
  • Woodruff, Christopher

Abstract

Management has a large effect on the productivity of large firms. But does management matter in micro and small firms, where the majority of the labor force in developing countries works? We develop 26 questions that measure business practices in marketing, stock-keeping, recordkeeping, and financial planning. These questions have been administered in surveys in Bangladesh, Chile, Ghana, Kenya, Mexico, Nigeria and Sri Lanka. We show that variation in business practices explains as much of the variation in outcomes – sales, profits and labor productivity and TFP – in microenterprises as in larger enterprises. Panel data from three countries indicate that better business practices predict higher survival rates and faster sales growth. The association of business practices with firm outcomes is robust to including numerous measures of the owner’s human capital. We find that owners with higher human capital, children of entrepreneurs, and firms with employees employ better business practices.

Suggested Citation

  • McKenzie, David & Woodruff, Christopher, 2016. "Business Practices in Small Firms in Developing Countries," Economic Research Papers 269583, University of Warwick - Department of Economics.
  • Handle: RePEc:ags:uwarer:269583
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    References listed on IDEAS

    as
    1. Marcel Fafchamps & Christopher Woodruff, 2017. "Identifying Gazelles: Expert Panels vs. Surveys as a Means to Identify Firms with Rapid Growth Potential," World Bank Economic Review, World Bank Group, vol. 31(3), pages 670-686.
    2. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2005. "Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 151-184, February.
    3. David McKenzie, 2017. "Identifying and Spurring High-Growth Entrepreneurship: Experimental Evidence from a Business Plan Competition," American Economic Review, American Economic Association, vol. 107(8), pages 2278-2307, August.
    4. Nicholas Bloom & Benn Eifert & Aprajit Mahajan & David McKenzie & John Roberts, 2013. "Does Management Matter? Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 128(1), pages 1-51.
    5. Nicholas Bloom & John Van Reenen, 2007. "Measuring and Explaining Management Practices Across Firms and Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 122(4), pages 1351-1408.
    6. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2014. "Business training and female enterprise start-up, growth, and dynamics: Experimental evidence from Sri Lanka," Journal of Development Economics, Elsevier, vol. 106(C), pages 199-210.
    7. Claudia Martínez A. & Esteban Puentes & Jaime Ruiz-Tagle, 2013. "Micro-Entrepreneurship Training and Asset Transfers: Short Term Impacts on the Poor," Working Papers wp380, University of Chile, Department of Economics.
    8. Gabriela Calderón & Jesse M. Cunha & Giacomo De Giorgi, 2013. "Business Literacy and Development: Evidence From a Randomized Controlled Trial in Rural Mexico," Working Papers 742, Barcelona Graduate School of Economics.
    9. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
    10. Gabriela Calderon & Leonardo Iacovone & Laura Juarez, 2017. "Opportunity versus Necessity: Understanding the Heterogeneity of Female Micro-Entrepreneurs," World Bank Economic Review, World Bank Group, vol. 30(Supplemen), pages 86-96.
    11. David McKenzie & Christopher Woodruff, 2014. "What Are We Learning from Business Training and Entrepreneurship Evaluations around the Developing World?," World Bank Research Observer, World Bank Group, vol. 29(1), pages 48-82.
    12. Taylor, Frederick Winslow, 1911. "The Principles of Scientific Management," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number taylor1911.
    13. Chang-Tai Hsieh & Benjamin A. Olken, 2014. "The Missing "Missing Middle"," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 89-108, Summer.
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    Citations

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    Cited by:

    1. Naudé, Wim, 2017. "Entrepreneurship, Education and the Fourth Industrial Revolution in Africa," IZA Discussion Papers 10855, Institute of Labor Economics (IZA).
    2. Muhammad Khan, "undated". "The Health Burden of Dust Pollution in the Textile Industry of Faisalabad, Pakistan," Working papers 120, The South Asian Network for Development and Environmental Economics.
    3. McKenzie, David & Puerto, Olga Susana, 2017. "Growing Markets through Business Training for Female Entrepreneurs: A Market-Level Randomized Experiment in Kenya," IZA Discussion Papers 10615, Institute of Labor Economics (IZA).
    4. Mayra Buvinic & Megan O’Donnell, 2017. "Gender Matters in Economic Empowerment Interventions: A Research Review," Working Papers id:11926, eSocialSciences.
    5. Beam, Emily A. & Hyman, Joshua & Theoharides, Caroline, 2017. "The Relative Returns to Education, Experience, and Attractiveness for Young Workers," IZA Discussion Papers 10537, Institute of Labor Economics (IZA).
    6. Atonu Rabbani, 2017. "Can Leaders Promote Better Health Behavior? Learning from a Sanitation and Hygiene Communication Experiment in Rural Bangladesh," Working Papers id:11904, eSocialSciences.
    7. repec:eee:socmed:v:220:y:2019:i:c:p:292-300 is not listed on IDEAS
    8. repec:iza:izawol:journl:y:2018:n:429 is not listed on IDEAS
    9. Lucia Foster & Patrice Norman, 2015. "The Annual Survey of Entrepreneurs: An Introduction," Working Papers 15-40r, Center for Economic Studies, U.S. Census Bureau.
    10. repec:cen:wpaper:15-40 is not listed on IDEAS
    11. Demenet Axel & Hoang Quynh, 2018. "How important are management practices for the productivity of small and medium enterprises?," WIDER Working Paper Series 69, World Institute for Development Economic Research (UNU-WIDER).
    12. Macchiavello, Rocco & Menzel, Andreas & Rabbani, Atonu & Woodruff, Christopher, 2015. "Challenges of Change: An Experiment Training Women to Manage in the Bangladeshi Garment Sector," Economic Research Papers 269725, University of Warwick - Department of Economics.
    13. Achyuta Adhvaryu & Namrata Kala & Anant Nyshadham, 2019. "Management and Shocks to Worker Productivity," NBER Working Papers 25865, National Bureau of Economic Research, Inc.
    14. David McKenzie, 2017. "Identifying and Spurring High-Growth Entrepreneurship: Experimental Evidence from a Business Plan Competition," American Economic Review, American Economic Association, vol. 107(8), pages 2278-2307, August.
    15. repec:gam:jscscx:v:7:y:2018:i:12:p:248-:d:185515 is not listed on IDEAS
    16. Dhaniel Ilyas, 2017. "Preliminary Finding of Small and Micro Firms Resilience in Indonesia," LPEM FEBUI Working Papers 201715, LPEM, Faculty of Economics and Business, University of Indonesia, revised Dec 2017.

    More about this item

    Keywords

    Financial Economics;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • M53 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Training

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