Business Illiteracy as an Obstacle to Development

A new NBER working paper called Business Literacy and Development: Evidence from a Randomized Controlled Trial in Rural Mexico tests whether females entrepreneurs in rural Mexico are being held back by a lack of business skills.

More specifically, the authors develop a model that yields two testable hypotheses:  (1) among the treatment group, those with less entrepreneurial ability should be more likely to quit their business; and (2) those with more entrepreneurial ability should increase their profits after receiving the treatment.  They measure ability by pre-treatment business profitability and the treatment is a free, 48 hour business skills course for female entrepreneurs.

They find that “those assigned to treatment earn higher profits, have larger revenues, serve a greater number of clients, are more likely to use formal accounting techniques, and more likely to be registered with the government. “Low-quality” entrepreneurs are the most likely to quit their business post-treatment, and that the positive impacts of the treatment are increasing in entrepreneurial quality.”