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  5. Firms, Markets and Supply Chains in Developing Countries
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Firms, Markets and Supply Chains in Developing Countries

Paper Session

Saturday, Jan. 6, 2024 2:30 PM - 4:30 PM (CST)

Marriott Rivercenter, Conference Room 7
Hosted By: Association for Comparative Economic Studies
  • Chair: Jie Bai, Harvard University

Demand-Side Incentives and Quality Upgrading in Uganda’s Coffee Supply Chain

Jie Bai
,
Harvard University
Lauren Bergquist
,
Yale University
Ameet Morjaria
,
Northwestern University
Russell Morton
,
University of Michigan
Yulu Tang
,
Harvard University

Abstract

Quality upgrading is increasingly recognized as key to accessing export markets and promoting economic growth in low and middle-income countries (LMICs), given the often-large quality premia offered by world markets. But it is unclear whether producers in LMICs, who frequently sell into long domestic supply chains, face the same quality premia as offered in the export market. How are incentives for and production of quality distributed along the supply chain and how does market structure shape these incentives? We study these questions in the context of Uganda’s coffee supply chain. We begin by mapping the complete supply chain, from the farm gate to export gate, and collect detailed transaction-level data on prices, quantities, and laboratory quality measures along the chain. We document multiple layers of domestic intermediation and a diminishing price-quality gradient as we move up the supply chain. We then interpret these findings through a model featuring upstream-downstream linkages, quality production by every layer along the chain, and fixed costs of operating in the high-quality segment for the downstream intermediaries. The model generates endogenous quality production decisions along the chain and differential markdowns by quality, both of which dampen quality premium upstream. We show theoretically that buyer market power distorts allocation of quality investments, in addition to standard monopsony distortions on price and quantities. Next, we estimate the model to recover the markdowns and quantify the distortion due to market power. To do so, we offer randomized coffee-production contracts throughout the chain, for which we experimentally vary both the quality and quantity features of these contracts. The experimental variation generates exogenous quality-specific demand shifters, which allow us to estimate the underlying cost functions of producing quality in both the upstream and downstream. Finally, we deploy the model to: quantify markdowns by quality type and market power distortions in the

Industrial Policy for Developing Countries: Is There a Way to Pick Winners?

Tristan Reed
,
World Bank

Abstract

pending

Self-Employment within the Firm

Vittorio Bassi
,
University of Southern California
Jung Hyuk Lee
,
Ministry of Economy and Finance-Republic of Korea
Alessandra Peter
,
New York University
Tommaso Porzio
,
Columbia University
Ritwika Sen
,
Northwestern University
Esau Tugume
,
BRAC Institute of Governance & Development

Abstract

We collect time-use data for entrepreneurs and their workers in over 1,000manufacturing firms in urban Uganda. We document limited labor special-ization within the firm for establishments of all sizes and argue that this islikely due to the prevalence of product customization. We then develop a gen-eral equilibrium model of task assignment within the firm, estimate it withour data, and find large barriers to labor specialization. This setting is close,in terms of aggregate productivity and firm scale, to an extreme benchmarkin which each firm is just a collection of self-employed individuals sharing aproduction space. Given how firms are organized internally, the benefits fromalleviating other frictions that constrain firm growth are muted: most Africanfirms resemble artisanal workshops whose business model is not easily scalable.
JEL Classifications
  • O1 - Economic Development
  • O1 - Economic Development