Empirical research on firm-level network connections in developing countries has focused to date primarily on agricultural technology adoption. Several influential papers document that in the context of agricultural commodities, social networks can be leveraged to increase technology adoption, agricultural yields, and ultimately incomes (e.g. Bandiera and Rasul, 2006, Conley and Udry, 2010, Foster and Rosenzweig, 1995).
Transferring these findings to other income generating contexts is complicated by the fact that many manufacturing and services firms compete more directly over local demand (which is essentially fixed in the short term) than communities of agricultural producers compete given a wider market or world price. This direct competition puts potentially profit increasing functions of firm-level networks in conflict with co-insurance functions of firm-level networks. As Barr (1998) observes, networks maintained primarily to address uncertainty and income variability generate greater positive spillover effects, but limit the potential for network connections to improve firm performance. The co-insurance motive may also actually limit competitiveness within a network, as firm owners prefer to maintain co-insurance relationships rather than aggressively compete and alienate potential risk sharing partners.
Small and micro enterprise owners in Ghana, and throughout the developing world, maintain complex network relationships within their industries. Our sample, the universe of garment making firm owners in a single mid-size town in the Volta Region of Ghana, is no exception. Baseline data reveals patterns of skill sharing, information sharing, productive input sharing, and outsourcing that suggest these firm-level networks serve an important co-insurance function.
In this experiment, a random subset of our sample will receive training in a new fashion style. Training will include a technical component, discussion of marketing the new style, and marketing materials. Leveraging baseline heterogeneity in the number and nature of network connections, in combination with the randomized experiment, we seek to characterize the nature of network relationships in our context and measure the effects of different types of relationships on firm performance.
Ex-ante, the overall predictions are ambiguous, but broadly we hypothesize that we will observe both positive direct effects of training on income and positive indirect/spillover effects of training on the income of trained firms' network connections. In addition, we expect these positive spillover effects to be strongest (1) for network connections with a history of skill sharing, (2) in the later weeks of the follow-up panel, and (3) for competition-distant network connections. In addition, we hope to document negative spillover/competition effects of training on firms that are close competitors of trained firms but not co-insurance network connections. Documenting the dynamic ability of trained firms to capitalize on any competitive advantage associated with the new style in the early period, and whether/how that competitive advantage dissipates due to co-insurance skill-sharing norms is a key ambition of this study.
Focus groups and qualitative interviews before the design of the experiment revealed that skill-seeking behavior may be an important skill diffusion channel, as the norm among skill-sharing partners requires positive response to requests for skill-sharing but not proactive/preemptive skill-sharing. Consequently, the experiment will also randomize a subset of the sample to receive information and marketing material about the fashion style, but not direct technical training. We expect these firm owners to seek technical instruction from skill-sharing network connections. More skill-sharing to informed (but not trained) firms would be evidence that the co-insurance mechanism functions imperfectly, where the ability to hide a new competitive advantage allows firm owners to retain that advantage longer.