What do we really know about how to build business capacity? A nice new paper by David McKenzie and Chris Woodruff takes a look at the evidence on business training programs – one of the more common tools used to build up small and medium enterprises. They do some work to make the papers somewhat comparable and this helps us to add up the totality of the lessons. What’s more, as David and Chris go through the evidence, they come up with a lot of interesting (and some not-so-obvious) lessons for actually doing impact evaluation of business training programs – I’ll save these lessons for next week and today talk about why we don’t know that much.
To take stock of the available evidence on business training, David and Chris search Econlit, Google scholar and then go out and ask folks for studies. They limit their discussion to papers which have tried to deal with selection on observables and unobservables and focuses on business practices (thus not taking on the substantial technical/vocational training literature). This gives them 14 studies to focus on (13 of which are randomized). These are almost all some sort of classroom training (sometimes combined as part of a microfinance program) but they also briefly discuss three other experiments which focus on providing individual consulting services.
Chris and David point out that for the average business a 25% increase in profit might cover 75% of the cost of the program over a year. But none of the studies was powered for a 25% increase in revenues and only two were powered for a 25% increase in profits (at 80% power). So we shouldn’t be surprised by the relatively weak overall results on these programs. And keep in mind that this is a fairly new area – of their 14 studies, only 5 have been published so far, and the oldest one dates from 2010 – so we are still learning about doing evaluations in this area.