We organized business associations for the owner-managers of young Chinese firms to study the effect of business networks on firm performance. We randomized 2,820 firms into small groups whose managers held monthly meetings for one year, and into a “no-meetings” control group. We find the following. (i) The meetings increased firm revenue by 8.1%, and also significantly increased profit, factors, inputs, the number of partners, borrowing, and a management score. (ii) These effects persisted one year after the conclusion of the meetings. (iii) Firms randomized to have better peers exhibited higher growth. We exploit additional interventions to document concrete channels. (iv) Managers shared exogenous business-relevant information, particularly when they were not competitors, showing that the meetings facilitated learning from peers. (v) Managers created more business partnerships in the regular than in other one-time meetings, showing that the meetings improved supplier-client matching.

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Published Paper
Date:
April 18, 2018
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The Small and Medium Enterprise (SME) Program at IPA discovers and promotes effective solutions to the constraints faced by entrepreneurs and SMEs in developing countries. SMEs are the largest generators of employment in the developing world, creating nearly 60% of new jobs. They also generate a myriad of opportunities across sectors and geographic areas, and employ broad and diverse segments of the labor force. SMEs in developing countries, however, face constraints that are disproportionately large compared to those faced by larger firms and by SMEs in developed countries. Limited access to finance, low levels of human capital, and difficulty accessing markets stand out as some of the most challenging barriers to business growth.

Type:
Brief
Date:
December 21, 2017