The High Cost of High-Quality Inputs as a Barrier to Upgrading

Photo: The rexine lamination process; workers are gluing layers of cotton and polyester fabric onto the sheets of artificial leather (rexine) from which the exterior of the ball will be formed.

Investigators: CDEP Affiliate Amit Khandelwal, CDEP Co-Director Eric Verhoogen, David Atkin of MIT and Azam Chaudhry and Shamyla Chaudry of the Lahore School of Economics.

Quality upgrading by manufacturing firms is a key element of the process of growth and development in low‐income countries. This project is investigating an important supply‐side factor that may act as a barrier to upgrading: the high cost of high‐quality inputs.

Focusing on soccer-ball producers in Sialkot, Pakistan (the subject of a previous study by the same authors), the research team is carrying out a randomized experiment that provides subsidies for high‐quality rexine (the artificial leather that is the most expensive material input to the production process) to a random subset of firms. The researchers hypothesize that the short-term subsidies may have long-term effects on the quality of other materials the firms use, the quality of the balls they produce, the destination markets they sell to, and the price and profitability of the balls they sell.

The project is part of CDEP’s Firms and Innovation Initiative and has been funded by the Private Enterprise Development in Low-Income Countries (PEDL) initiative), a joint initiative of the U.K. Department for International Development and the Centre for Economic Policy Research.