Tuesday, December 16, 2014

Not so shocking: trade leads to development

Again reinforcing that what's needed for economic development is trade, not aid - when a random group of small rug producers was given the opportunity to export handmade carpets to high-income markets (study by Atkin, Khandelwal and Osman, via Chris Blattman):

Treatment firms report 15-25 percent higher profits and exhibit large improvements in quality alongside reductions in output per hour relative to control firms.

These findings do not simply reflect firms being offered higher margins to manufacture high-quality products that take longer to produce. Instead, we find evidence of learning-by-exporting whereby exporting improves technical efficiency.

First, treatment firms have higher productivity and quality after accounting for rug specifications. Second, when asked to produce an identical domestic rug using the same inputs, treatment firms receive higher quality assessments despite no difference in production time. Third, treatment firms exhibit learning curves over time.

Finally, we document knowledge transfers with quality increasing most along the specific dimensions that the knowledge pertained to.

No comments: