Text Box: Research

Text Box: A New Lease on Life: Institutions, External Financing, and Business Growth (with Greg Brown and Leora Klapper)   This research utilizes data from the World Bank Investment Climate Survey to examine access to external capital for 35,000 small and medium sized firms in over 70 developing and developed countries. Contrary to conventional wisdom, even many small firms in the poorest countries have access to some type of external financing. However, the sources differ systematically by institutional and firm characteristics. Unexpectedly, the use of both local and foreign bank debt varies little across a wide range of country income levels. However, firms in poorer countries, with generally weaker institutions, use far less leasing for new investment and instead rely on friends, family, and other informal sources. We confirm that access to external capital, and especially lease financing, is related to faster firm growth. But most surprisingly, use of lease financing is the only important determinant of the differential growth related to institutional factors, and in particular, the rule of law.   Decentralizing Development: Allocating Public Goods via Competition Decentralizing the allocation of public goods by giving funds directly to communities takes advantage of local information concerning needs, but leaves funds open to misuse or capture by local elites.  In Indonesia, the World Bank attempts to overcome this downside of decentralized allocation by having communities compete locally for block grants.  Competition weeds out less efficient projects.  Increasing the number of villages bidding by 10% leads to a 1.8% decline in road construction costs.  A similar pattern is found among microcredit projects.  Increased community participation in project planning also leads to better outcomes.     Consumer Boycotts: The Impact of the Iraq War on French Wince Sales in the U.S. (with Phillip Leslie)   The French opposition to the war in Iraq in early 2003 prompted calls for a boycott of French wine in the US. We measure the magnitude of consumers’ participation in the boycott, and look at basic evidence of who participates. Conservative estimates indicate that the boycott resulted in 26% lower weekly sales at its peak, and 13% lower sales over the six month period that we estimate the boycott lasted for. Although theory suggests consumers would not participate in boycotts due to a free-rider problem, these findings indicate that businesses should be concerned that consumers may boycott their products.  We also find that neither political preferences or media attention are important determinants of boycott participation.     Firms, Bureaucrats, and Organized Crime:  An Empirical Examination of Illicit Interactions Using a survey of new firms in Poland, Romania, and Slovakia, I explore how an entrepreneur’s social networks affect the amount paid in bribes to government officials and organized crime. Having an owner who was a former manager of a state owned enterprise (SOE), being a spin-off from a SOE, and being a member of a trade association are all associated with lower levels of bribe payments. The results also suggest that these networks have a larger impact on bribe payments than firm characteristics such as profits, sales, or resale value. For a typical small firm, having an owner who was a former manager of an SOE reduces bribe payments by over $3,000 per year, while doubling its profits results in less than a $10 increase in bribe payments. These results also suggest that government officials and organized crime do not coordinate the amount of money demanded from firms.    

Text Box: Shaping leaders, driving results.