Informational barriers to market access: experimental evidence from Liberian firms

What is this research about and why did you do it?

A huge challenge for research and policy efforts to accelerate economic development is that firms in poor countries grow surprisingly slowly, making job creation in the “Global South” difficult to achieve. We don’t know why: the existing literature has mostly focused on production constraints—the cost firms incur to produce goods and services—but these appear to have modest explanatory power. Recent evidence suggests that many firms in poor countries stagnate because they cannot access growth-conducive markets. A natural way forward is then to ask why some firms are better able to access desirable markets than others.

‍

How did you answer this question?

Existing research considers infrastructure, tariffs, and other traditional market access barriers whose impact in large part depends on a firm's location and “type” (such as e.g. its sector or size). However, ability to market products appears to vary substantially even across quite similar firms that are located near each other. This suggests that overlooked categories of access barriers may “bind” for some firms.

We hypothesized that informational barriers distort market access. To investigate we gave a random subset of medium-sized firms in Liberia vouchers for a week-long program that exclusively teaches "sellership": how to sell to corporations, governments, and other large buyers that acquire inputs through formal contracts.

‍

What did you find?

Firms that participate in the training win three times as many formal contracts a year later. The impact is heterogeneous: informational sales barriers bind for about a quarter of firms. Three years post-training, these firms continue to win desirable contracts, are more likely to operate, and employ more workers.

‍

What implications does this have for the research on wealth concentration or economic inequality?

We asked if large buyers' complex, unfamiliar input procurement procedures and the pure marketing ability they necessitate on suppliers' side of the market exclude firms in poor countries from growth-conducive value chains. In doing so we build on research documenting how complex application procedures and knowledge barriers constrain qualified-but-underrepresented individuals’ educational, labor market, and social assistance choices. Our findings add to growing evidence that informational barriers can be surprisingly costly to overcome also for disadvantaged firms.

‍

What are the next steps in your agenda?

We hope to investigate how firms’ and individuals’ de facto ability to acquire production inputs and sell output is influenced by overlooked economic, political, and social factors along the various stages of the production process and to inform policy responses.

‍

Citation

This paper can be cited as follows: Hjort, J., Iyer, V., and de Rochambeau, G. (2020) "Informational barriers to market access: experimental evidence from Liberian firms." NBER Working Paper no. 27662.