Rule of Law and Female Entrepreneurship

Nava Ashraf (LSE)
Alexia Delfino (LSE)
Edward Glaeser (Harvard)

Abstract : Commerce requires trust, but trust is difficult when one group consistently fears expropriation by another. If men have a comparative advantage at violence and there is little rule-of-law, then unequal bargaining power can lead women to segregate into low-return industries and avoid entrepreneurship altogether. In this paper, we present a model of female entrepreneurship and rule of law that predicts that women will only start businesses when they have both formal legal protection and informal bargaining power. The model’s predictions are supported both in cross-national data and with a new census of Zambian manufacturers. In Zambia, female entrepreneurs collaborate less, learn less from fellow entrepreneurs, earn less and segregate into industries with more women, but gender differences are ameliorated when women have access to adjudicating institutions, such as Lusaka’s “Market Chiefs” who are empowered to adjudicate small commercial disputes. We experimentally induce variation in local institutional quality in an adapted trust game, and find that this also reduces the gender gap in trust and economic activity.

Achieving Scale Collectively

Vittorio Bassi (University of Southern California)
Raffaela Muoio (BRAC)
Tommaso Porzio (Columbia University)
Ritwika Sen (Northwestern University)
Esau Tugume (BRAC)

Abstract : Technology is often embodied in expensive and indivisible capital goods, such as production machines. As a result, the small scale of firms in developing countries could hinder investment and productivity. This paper argues that market interactions between small firms substantially attenuate this concern, by allowing them to achieve scale collectively. We design a firm-level survey to measure production processes in three prominent manufacturing sectors in urban Uganda. We document the emergence of an active rental market for machines among small firms, and we build and estimate an equilibrium model of firm behavior to quantify its importance. Our results show that the rental market almost doubles the share of firms using machines, and increases labor productivity by 8%, relative to a counterfactual economy where renting is not possible. We show that the rental market leads to significant gains in our context because it mitigates substantial imperfections in the labor, output, and financial markets.

Conflict and Inter-group Trade: Evidence from the 2014 Russia-ukraine Crisis

Alexey Makarin (EIEF)
Vasily Korovkin (CERGE-EI)

Abstract : Does armed conflict reduce trade even in non-combat areas through the destruction of inter-group social capital? We analyze Ukrainian trade transactions before and after the 2014 Russia-Ukraine conflict. In a difference-in-differences framework, we find that Ukrainian firms from districts with fewer ethnic Russians experienced a deeper decline in trade with Russia. This decline is economically significant, persistent, and explained by erosion of trust and the rise of local nationalism. Affected Ukrainian firms suffered a decrease in performance and diverted trade to other countries. Our results suggest that, through social effects, conflict can be economically damaging even away from combat areas.

Ownership Changes, Management and Efficiency: Evidence from Rwanda's Coffee Industry

Ameet Morjaria (Kellogg School of Management, Northwestern Univers)
Rocco Macchiavello (London School of Economics)

Abstract : Markets in developing countries are characterized by long tails of inefficient and poorly run firms and by significant misallocation of assets – two symptoms that the market process that normally reallocates poorly run assets to better managed firms does not function well. This paper provides a detailed study of the Rwanda coffee industry, a context characterized by widespread inefficiencies and that has seen in recent years a process through which large multi-national groups have been integrating backward and acquiring a significant number of mills. Preliminary difference-in-difference results suggest that, controlling for mill and year fixed effects, a mill acquired by a foreign group improves productivity and profitability. Using a uniquely detailed survey panel we document how foreign groups change mills performance. Foreign groups change managers upon acquisition, recruit younger, more educated and higher ability managers and pay these managers a significantly higher salary, even conditional on manager characteristics. These “better” managers explain about half of the better performance associated with foreign ownership. Relative to other managers changes, managers of foreign groups attempt to implement more changes after being in charge of the mill, enjoy more autonomy from owners, but face more resistance from mill’s other constituencies. Domestic-owned groups have also expanded but are, in general, not associated with improvements in performance. We discuss implications for organizational change and for fostering market development in emerging countries.