Synthesis Documents

What works for market development: A review of the evidence, Sinha, Holmberg and Thomas, Sida, 2013

    Description
    This pre-study serves two main purposes: i) to inform Sida of the evidence of what works for market development and the results frameworks and results chains derived from it; and ii) to identify the gaps in evidence and recommend what Sida should focus on in evaluating its market development portfolio. It focuses on private sector development (PSD), financial sector development, trade, and the use of instruments. Given the relevance and importance of agriculture to market development, an appendix is also included to cover this. In regards to PSD, five different areas of intervention are looked at: Policies and Institutions; Support Functions; Industrial Policy; Promoting Entrepreneurship and Investment; and Productivity and Competitive Markets. The latter three are direct interventions intended to support the private sector in delivering faster growth that is more inclusive.

    The methodology has been to conduct a broad review of the literature to develop theories of change and then subject the main results chains to the scrutiny of evidence. Evidence has been drawn from studies using a wide variety of methods of evaluation. It has focused in particular on the findings of synthesis evaluations as these are able to rise above project implementation factors to assess what that type of intervention achieves. This has enabled the study to identify gaps in evidence and recommend what Sida should focus on in evaluating its market development portfolio.

    Summary of results
    Entrepreneurship and the growth of small businesses do impact positively on economic development and job creation but the focus of programs should, however, be on transformative enterprises. This is an area where further research is needed, particularly on macro evidence of the contribution to employment and output made by firms of different ages, size and industries, as well as micro research on how to identify transformative enterprises, and what percentage of the stock of enterprises, has the attitudes and attributes to be considered transformative. Attempts are being made to identify transformative enterprises, based on the attitudes and attributes of their owners, but the evidence base is still very small.

    Growth of productivity is crucial for sustaining rapid economic growth. It determines how efficient investment is in causing growth, and how the productivity of labour, in relation to its cost, is a major element in determining the demand for labour. Productivity growth usually starts with agriculture, and this is where the focus of an intervention should be at early stages of development. But when countries start to achieve higher levels of development, productivity increases due to a shift of resources to the industry and service industries where productivity is higher. So supporting structural transformation is important.

    There are strong theoretical grounds for suggesting that competitive markets are crucial for economic efficiency, and, hence, for growth, and that monopolies hurt the poor most. However, the empirical evidence is not always clear-cut. There are many examples where restricting competition in the short term can provide long term gains. There is a need for further research to establish how competition regimes can be made more effective in addressing consumer welfare, whilst providing room for exceptions (based on objective criteria), that enable greater investment and innovation to deliver benefits in the longer term.