Consulting and capital experiments with microenterprisetailors in Ghana

A randomized trial  was conducted in urban Ghana in which tailoring microenterprises received advice from an international consulting firm, cash, both, or neither. The study was designed with a hypothesis that large infusions of financial and managerial capital could be transformative. It was found that all three treatments led to their immediate intended effects: changed business practices and increased investment. However, no treatment led to higherprofits on average, and certainly not to the large effects hypothesized. In fact, each treatmentat some point led to lower profits. Then, in the long run, microentrepreneurs in either consulting treatment group reverted back to their prior business practices, and microentrepreneurs in the cash treatment group reverted back to their prior scale of operations.

Policy implications 
Relaxing capital and managerial constraints can allow business owners to experiment with new techniques or investments, but these experiments don’t necessarily lead to higher profits or firm growth. Adoption of better business practices might be profitable for some micro firms, but it’s difficult to identify in advance those that would benefit.
Karlan, D., Knight, R., & Udry, C., 2015. Consulting and capital experiments with microenterprise tailors in Ghana. Journal of Economic Behavior & Organization, 118, 281-302.