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  5. Recent Perspectives on Firms, Supply Chains, and Trade in Developing Economies
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Recent Perspectives on Firms, Supply Chains, and Trade in Developing Economies

Paper Session

Friday, Jan. 7, 2022 3:45 PM - 5:45 PM (EST)

Hosted By: American Economic Association
  • Chair: Ameet Morjaria, Northwestern University

Ethnic Investing and the Value of Firms

Jonas Hjort
,
Columbia University

Abstract

We study ethnic investing, using transaction data from Kenya's stock exchange and
CEO/board turnover. We show that a given investor invests more in a given firm when the
firm is run by coethnics and earns lower risk-adjusted returns on such investments. We then
model and empirically test for the aggregate impact of (i) the implied taste- or psychology-driven investor discrimination and (ii) counteracting demand- and supply-side forces. Our
estimates imply that listed Kenyan firms could collectively be worth 37 percent more---with
minority-run firms benefitting the most---if the neutral proportion of active investors increased from 4.2 to 50 percent.

Production Networks and War

Alexey Makarin
,
Einaudi Institute for Economics and Finance
Vasily Korovkin
,
CERGE-EI

Abstract

How do severe shocks such as war alter the economy? We study how a country's production network is affected by a devastating but localized conflict. Using unique transaction-level data on Ukrainian railway shipments, we uncover several novel indirect effects of conflict on firms. First, we document substantial propagation effects on interfirm trade - trade declines even between partners outside the conflict areas if one of them had traded with those areas before the start of the war. The magnitude of such second-degree effect of conflict is one-third of the first-degree effect. Ignoring this propagation would lead to an underestimate of the total impact of conflict on trade by about 67%. Second, war induces sudden changes in the production-network structure that influence firm performance. Specifically, we find that firms that exogenously became more central - after the conflict practically cut off certain regions from the rest of Ukraine - received a relative boost to their revenues and profits. Finally, in a production-network model, we separately estimate the effects of the exogenous firm removal and the subsequent endogenous network adjustment on firm revenue distribution. At the median, network adjustment compensates for 80% of the network-destruction effect a year after the conflict onset.

Cutting Out the Middleman: The Structure of Chains of Intermediation

Meredith Startz
,
Dartmouth College
Matthew Grant
,
Dartmouth College

Abstract

Wholesalers and other intermediaries play a major role in trade. In fact, goods may pass along a whole chain of intermediaries who engage in little or no transformation. In survey data from Nigeria, we find that there are on average at least three separate intermediaries between an international manufacturer and a Nigerian consumer. We model the formation of these chains, and their implications for measurement of trade costs and consumer welfare across locations within Nigeria. The model relates fundamentals of trade costs and local consumer demand in many locations to equilibrium chain structure. The route and market structure at each link will influence effective trade costs and markups. Consumers in entrepôts benefit from indirect demand flowing through their location, and contrary to the typical intuition, consumers in end destinations can also benefit from longer chains of intermediation in some cases. Taking chains into account also suggests that estimates of distance costs in developing countries are biased upward, and may contribute less to consumer-producer price gaps than typically thought.

Acquisitions, Management, and Efficiency in Rwanda’s Coffee Industry

Ameet Morjaria
,
Northwestern University

Abstract

Markets in low-income countries often display long tails of inefficient firms and significant misallocation. This paper studies Rwandan coffee mills, an industry initially characterized by widespread inefficiencies that has recently seen a process of consolidation in which exporters have acquired control of a significant number of mills giving rise to multi-plant groups. We combine administrative data with original surveys of both mills and acquirers to understand the consequences of this consolidation. Difference-in-difference results suggest that, controlling for mill and year fixed effects, a mill acquired by a foreign group, but not by a domestic group, improves productivity. The difference in performance is not accompanied by changes in mill technology or differential access to finance. Upon acquisition, both foreign and domestic group change mills' managers. Foreign groups, however, recruit younger, more educated and higher ability managers, pay these managers a higher salary (even conditional on manager and mill characteristics) and grant them more autonomy. These “better” managers explain about half of the better performance associated with foreign ownership. The difference in performance reflects superior implementation, rather than management knowledge: following an acquisition, managers in domestic and foreign groups try to implement the same management changes but managers in domestic groups report significantly higher resistance from both workers and farmers and fail to implement the changes. The results have implications for our understanding of organizational change and for fostering market development in emerging markets.

Discussant(s)
Francesco D’Acunto
,
Boston College
Francesco Amodio
,
McGill University
Shoumitro Chatterjee
,
Pennsylvania State University
Daniel Keniston
,
Louisiana State University
JEL Classifications
  • O1 - Economic Development
  • L1 - Market Structure, Firm Strategy, and Market Performance