The Catch-22 of External Validity in the Context of Constraints to Firm Growth

Greg Fischer, Dean Karlan
2015 The American Economic Review  
There is a disconnect between academic economists' search for individual mechanisms that constrain firm growth and the more complex reality facing firms and policymakers aiming to alleviate these constraints. The comprehensive, some would say scattershot, approaches that are common in practice are considered challenging for evaluators because of the difficulty in identifying any particular causal mechanism. More targeted attempts to improve business performance typically generate mixed
more » ... ce (McKenzie and Woodruff 2012) or do not seem to scale either in the market or with public support. With that in mind, we partnered with the Asian Institute of Management, a leading Philippine business school, to launch a classbased program that had MBA students providing consulting services for local small and medium enterprises. We had three goals, spanning policy, research and teaching: to pilot a potentially scalable approach to improving management practices for small businesses; to better understand the complex set of constraints facing individual small businesses; and, to test a hands-on, multi-skill teaching approach for MBA students. We began with the administrative list of all tax-registered businesses in Makati City, Manila, where AIM is located. For our pilot, we restricted our attention to businesses in operation for at least two years; reporting revenues in 2010 between 1 and 15 million Philippines Pesos (PHP) 1 ; and in industries where general consulting was feasible (e.g., we excluded foreign exchange services). We attempted to visit all 4,212 eligible businesses. Nearly 40% were not reached because they had changed address, closed, or otherwise could not be located. We explained (but did not promise) the consulting program to the 2,533 businesses that were reached. Ultimately, only 177 interviews were completed, as many owners or managers were either too busy to complete the interview, not interested in participating, or repeatedly out of 1 Approximately US$ 23,600 -354,600 at the mid-2011 exchange rate of 42.3 PHP/USD.
doi:10.1257/aer.p20151078 fatcat:xhi436ts4vcrnlxzad57epsnte