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The Impact of Exporting: Evidence from a Randomized Experiment in Egypt

Development Challenge

In many developing countries, small and medium enterprises (SMEs) employ a substantial portion of the population.[1] Many of these countries have government-sponsored trade-facilitation programs[2] based on the assumption that increased exports will spur local SME growth and help local economies. However, several studies have questioned the assumption that exportation to western markets raises aggregate productivity.[3] Additionally, the actual impact of increased SME market access on household welfare is unknown, making it difficult for policy makers to assess whether trade-facilitation methods are a cost-effective poverty reduction strategy. Finally, little is known about what specific firm characteristics are conducive to exportation.  Evidence on this subject would allow policy makers to implement more targeted export promotion programs.

Context

The project is set in Fowa, a peri-urban Egyptian town with a population of 65,000. The business owners participating have a per capita income of about $400 annually, well below the national average of $2,250. The study focuses on small enterprises with a single employee, the majority of which have not knowingly exported in the past.

Evaluation Strategy

A baseline survey conducted in July 2011 collected information from a sample of carpet-making SMEs on production techniques and quality levels, firm owner characteristics, and owners’ household indicators. A randomly chosen set of these firms were offered the opportunity to produce orders generated by a local carpet distributor destined for retailers in the United States and Europe. The orders were for a significantly higher quality carpet than the typical product produced by these firms for the domestic market. Periodic surveys capture changes in firm profits and weaver incomes. The goal of this study is to offer evidence on the link between exportation, firm performance, and family income levels that will help policy makers both assess the role of export promotion in poverty reduction and design more targeted programs.

Results and Policy Implications

Project ongoing. Results forthcoming.

Timeline

2011 - 

[1] IFC: Scaling-Up SME Access to Financial Services in the Developing World 2010

[2] Cadot, Olivier, et al. 2011. "Impact Evaluation of Trade Assistance: Paving the Way." Where to Spend the Next Million?

[3] Melitz, Marc J. 2008. "International trade and heterogeneous firms." New Palgrave Dictionary of Economics.

Photo: Carpet Factory in Egypt, courtesy of www.theenvironmentalblog.org via Creative Commons.