In the latest episode of Talking Economics, we discuss firms and labour markets in developing countries with Andreas Menzel, an Associate Professor at CERGE-EI. Andreas’s research projects focus on development, organisational, and labour economics with field experiments in Ghana, Tanzania, and Bangladesh.
While firms in developed countries often boast hundreds of employees, those in developing nations typically employ less than five. “One reason why we see so many very small businesses in many poor countries is that it’s just a lot of people who are forced to run a little business because there is no other employment. The firm owners in developing countries can be split into so-called natural entrepreneurs – those that want to grow – and the necessity ones that only run it because there is no other way how to earn money,” Andreas explains.
The correlation between firm size and GDP per capita is striking, hinting at a potential causal relationship. Does a larger GDP lead to bigger firms, or vice versa? “That is what the research that I do is about. It’s one of the biggest research areas in development economics now,” says Andreas.
One industry stands out as a beacon of development: the garment sector. Over the past half century, several countries have witnessed transformative growth by harnessing the power of garment exports. Notably, this sector has provided significant employment opportunities, particularly for women. However, challenges persist, especially concerning gender discrimination and wage disparities. Andreas highlights the importance of information dissemination and gradual shifts in societal beliefs to combat these systemic issues: “An effective way to combat discrimination is often that you are providing information and slowly changing the beliefs.” Despite these challenges, Andreas sees the garment industry as an effective first step in development strategy.
