Competition and Management Upgrading: Experimental Evidence from Ethiopia

We experimentally test two seminal hypotheses on the impact of competition on firms' management upgrading. In a first experiment, we protect firms from labor market competition by reducing the risk that a freshly trained manager would be poached by a rival firm. We find that this protection does not increase firms’ investment in management training. In a second suite of experiments, we boost perceived product market competition by informing firms either that rival firms have received management training or that foreign firms are gaining easier access to the domestic market. Again, we find no evidence that this increases firms’ average willingness to invest in management training. To explain why firms do not feel threatened by competition, we present evidence suggesting that, in contrast to commonly held assumptions, firm managers in our setting hold a mental model of competition that posits positive—instead of negative—spillovers, arising primarily from differentiation.