Essays on Firm Behavior in Developing Economies

The performance of firms is central to growth in developing economies. A burgeoning literature within development economics seeks to understand the behavior of firms in developing countries and the constraints to their performance. This dissertation explores two types of constraints - infrastructure-related constraints and trade-related constraints - faced by manufacturing firms in developing countries. Despite the widely acknowledged importance of infrastructure for economic growth, there has been relatively little research on how infrastructure affects the decisions of firms. Electricity, in particular, is commonly cited by firms in developing countries as a major obstacle to their performance. In the first two chapters, I analyze the responses of firms to two types of electricity constraints, namely electricity prices and electricity shortages. Chapter 1 provides evidence on how electricity prices affect a firm's industry choice and productivity growth using data on Indian manufacturing firms. I construct an instrument for electricity price as the interaction between the price of coal paid by power utilities, which is arguably exogenous to firm characteristics, and the initial share of thermal generation in a state's total electricity generation capacity. I find that, in response to an exogenous increase in electricity price, firms reduce their electricity consumption and switch to industries with less electricity-intensive production processes. I also find that firm output, machine intensity and labor productivity decline with an increase in electricity price. In addition to these level effects, I show that firm output and productivity growth rates are negatively affected by high electricity prices. These results suggest that electricity constraints faced by firms may limit a country's growth by leading firms to operate in industries with fewer productivity-enhancing opportunities. Chapter 2 examines the impact of electricity shortages on firm investment. I identify this impact by studying an electricity rationing program that took place in Ghana in 1998, which placed significant constraints on the electricity available to firms. Using data on Ghanaian manufacturing firms, I find a significant decline in investment in plant and machinery during the electricity rationing period. The decline in investment is more pronounced for firms in electricity-intensive sectors. I explore alternative explanations for the reduction in investment during the electricity rationing period, including a contraction in firm credit access and economy-wide shocks unrelated to electricity constraints, and find no evidence in support of either explanation. The results, therefore, suggest that the reduction in investment during the electricity rationing period was due to the constraints on the availability of electricity. These findings highlight the potentially negative impact of the inadequate provision of electricity that frequently plagues developing countries. These electricity constraints can hinder growth in these countries by curbing investment by firms. In Chapter 3, I turn to the investigation of the effect of a trade-related constraint. Until recently, most of the literature on firms engaged in international trade had largely focused on exporting, with little work on the role of imports in the behavior and performance of firms. Using data on Indonesian manufacturing firms, Chapter 3 analyzes the effect of a reduction in tariffs on imported inputs on the exporting activity of firms. I argue that a tariff reduction program in Indonesia, which generated exogenous variation in the tariffs imposed on imports of goods used by firms, had a positive effect on the exported share of output of firms. I explore the mechanisms underlying this positive effect and find that an increase in the use of imported inputs, facilitated by the reduction in input tariffs, generated an increase in the exported share of output of firms. I also find that this positive effect is stronger for firms in industries with a greater scope for quality differentiation and high skill intensity. These results suggest that input tariff liberalization, by increasing access to higher-quality inputs from abroad, allows firms to produce higher-quality products for export markets

Improving Reading Skills by Encouraging Children to Read: A Randomized Evaluation of the Sa Aklat Sisikat Reading Program in the Philippines

We evaluate a program that aims to improve children's reading skills by providing classes with age-appropriate reading material and incentivizing children to read through a 31 day read-a-thon. During the read-a-thon, the program significantly increases the propensity of children to read, causing 20 percent more children to have read a book in the last week at school and increasing the number of books read by 2.3 in the last week and 7.2 in the last month. These increases extend both after the end of the program and outside of school, although at lower rates. The program also increased students’ scores on a reading assessment, causing students’ scores to improve by 0.13 standard deviations immediately after the program. The effect persisted even after the program ended with an effect of 0.06 standard deviations three months later.education, reading, development

Improving reading skills by encouraging children to read: A randomized evaluation of the Sa Aklat Sisikat Reading Program in the Philippines

We evaluate a program that aims to improve children's reading skills by providing classes with age-appropriate reading material and incentivizing children to read through a 31 day read-a-thon. During the read-a-thon, the program significantly increases the propensity of children to read, causing 20 percent more children to have read a book in the last week at school and increasing the number of books read by 2.3 in the last week and 7.2 in the last month. These increases extend both after the end of the program and outside of school, although at lower rates. The program also increased students' scores on a reading assessment, causing students' scores to improve by 0.13 standard deviations immediately after the program. The effect persisted even after the program ended with an effect of 0.06 standard deviations three months later

Improving Reading Skills by Encouraging Children to Read in School: A Randomized Evaluation of the Sa Aklat Sisikat Reading Program in the Philippines

We show that a short-term (31 day) reading program, designed to provide age-appropriate reading material, to train teachers in their use, and to support teachers’ initial efforts for about a month improves students’ reading skills by 0.13 standard deviations. The effect is still present three months after the program but diminishes to 0.06 standard deviations, probably due to a reduced emphasis on reading after the program. We find that the program also encourages students to read more on their own at home. We find no evidence that improved reading ability improves test scores on other subjects.

Improving Reading Skills by Encouraging Children to Read: A Randomized Evaluation of the Sa Aklat Sisikat Reading Program in the Philippines

An evaluation of a program that aims to improve childrenâs reading skills by providing classes with age‐appropriate reading material and incentivizing children to read through a 31 day read‐athon. [Working paper No. 305]. URL: [http://ipl.econ.duke.edu/bread/papers/working/305.pdf].Education, Reading, Development, Philippines, program, children, skills, reading material, classes, Tarlac province, students, reading games, schhols, books, literacy skills, young children, public schools, literature, parents

Electricity Cost and Firm Performance: Evidence from India

Despite the widely acknowledged importance of infrastructure for economic growth, there has been relatively little research on how infrastructure affects the decisions of firms. Using data on Indian manufacturing firms, this paper provides evidence on how electricity prices affect a firm’s industry choice and productivity growth. I construct an instrument for electricity price as the interaction between the price of coal paid by power utilities, which is arguably exogenous to firm characteristics, and the initial share of thermal generation in a state’s total electricity generation capacity. I find that, in response to an exogenous increase in electricity price, firms reduce their electricity consumption and switch to industries with less electricity-intensive production processes. I also find that firm output, machine intensity and labor productivity decline with an increase in electricity price. In addition to these level effects, I show that firm output and productivity growth rates are negatively affected by high electricity prices. These results suggest that electricity constraints faced by firms may limit a country’s growth by leading firms to operate in industries with fewer productivity-enhancing opportunities