UNDERSTAND | November 20, 2019

Firms Research at J-PAL: A Scientific Approach to Growing Businesses

Man spinning thread.
Photo Credit: Haitham Fahmy | J-PAL

The Abdul Latif Jameel Poverty Action Lab (J-PAL) is excited to participate in Global Entrepreneurship Week to highlight the work of our Firms Sector. Led by J-PAL affiliates David Atkin (MIT) and Nicholas Bloom (Stanford), J-PAL’s Firms sector seeks to evaluate what works best in generating firm growth and how firms’ growth affects workers, their families, and the broader economy.

We believe that identifying policies that are effective in stimulating productivity growth or enabling high-productivity firms to grow larger can have important consequences for job creation and poverty alleviation. But while the past few years have seen a rapid growth in the number of firms-related studies, many of these studies have focused on growth and employment outcomes among microenterprises with a concentration around access to credit and business training as a means of firm growth and job creation.

To really move the needle and expand the evidence base around firm growth, research on firms would benefit from a broad but unified agenda that focuses on addressing policy relevant questions that can inform the decisions of policy implementers, donors, and governments. Over many years, J-PAL affiliated professors—including our sector co-chairs David and Nick—have conducted randomized evaluations that focus on the impact of policies and programs intended to promote firms’ growth and productivity.

We use randomized evaluations to draw out lessons on what works—and what doesn’t—in programs designed to help firms develop. Randomized evaluations in the social sciences, particularly in firms research, have tremendous potential to provide evidence on previously unanswerable questions. 

For example, J-PAL affiliates David Atkin, Adam Osman, and Amit Khandelwal published a study in 2017 in which they were able to identify the causal effect of enhancing access to foreign markets for microentrepreneurs. In their study, in collaboration with implementing partners, researchers secured export orders through trade fairs and direct marketing channels and randomly offered small-scale rug manufacturers in Egypt the opportunity to fill these orders. 

They found that discussions and learning between buyers and firms helped to improve the technical ability of firms to produce higher-quality rugs. This subsequently allowed them to sell rugs at a higher price, leading to increases in monthly profits of up to 26 percent. This and other similar studies are incredibly informative in helping us understand how markets provide firms with the opportunity to upgrade efficiency and quality.

We have laid out an ambitious agenda to fill important gaps in our knowledge of the causes and consequences of firm growth. Through research and synthesis work, we aim to build a robust body of evidence around the following questions:

  • How can we most effectively address differences in productivity between firms, and do so at scale?

  • Are policies that alleviate constraints faced by small firms effective at generating employment and reducing poverty, or should we focus on alleviating constraints faced by already-sizeable firms?

  • Do policies that promote firms’ employment and productivity lead to increased wages, improved working conditions, and job security for workers?

  • Do well-managed and productive firms pollute less?

We also seek to catalyze new research and identify generalizable insights that will have implications far beyond their original contexts. In order to produce the rigorous research required to inform this endeavor, we need greater partnerships and engagements between researchers, policymakers, and implementers. For this reason, we are excited to participate in this year’s Global Entrepreneurship Week and look forward to engaging with the growing network of entrepreneurs, investors, policymakers, researchers, and startup community leaders to improve our collective understanding of how best to grow firms.

Want to learn more about our work? Visit the Firms sector webpage and sign up here to receive the latest updates from J-PAL on firms research and more.

Siena is a Policy and Communications Associate at J-PAL, where she supports global strategic communications, media engagement, and alumni outreach… About the author