Informational Barriers to Accessing Demand: Experimental Evidence from Liberian Firms

Abstract: A widely held view is that productive firms in poor countries stagnate due to limited access to demand. We hypothesize that overlooked informational barriers to selling goods and services reduce access to demand. To investigate, we gave a randomly chosen subset of Liberian firms vouchers for a seven day-long training program. The program teaches how to compete for input procurement contracts from corporations, governments, and other large buyers that are awarded through a formal tender process. Firms that participate bid on more tenders; win about three times as many tender and non-tender contracts; and win contracts of higher quality. These benefits are concentrated among firms with access to the Internet. We use a simple model to illustrate two potential explanations: additional contracts being publicized online, and Internet access facilitating search and communication with buyers. Both mechanisms appear to be important in Liberia. We show this by exploiting variation in the composition of demand. When online demand—the share of tenders publicized online—is low, trained firms with Internet access win more non-tender contracts, pointing towards the search and communication mechanism. When online demand is high, trained firms with Internet access win both more non-tender contracts and more tenders, suggesting that online market access also matters. The Internet thus appears to dampen traditional information frictions, but—perhaps surprisingly—not informational barriers to firms in poor countries selling goods and services to large buyers. This may make such barriers the limit to many firms’ market in an online world.