Can Improving Market Access Spur Small Business Growth and Jobs in Latin America

While micro and small firms account for a big share of overall employment in Latin America and the Caribbean, they often struggle to grow in part because they lack skills or encounter other difficulties in selling their goods and services to buyers.

This limits the size of markets they can access. For example, data from the World Enterprise Surveys shows that only 6.7% of Latin America and the Caribbean firms export, and 44% of firms find it difficult to comply with government contract tender requirements.

Market access programs and policies can in theory help to correct these problems and help generate growth by making it easier for businesses, like micro and small firms, to find and connect with buyers and markets. Indeed, as of 2022, according to the World Bank, more than 57 countries globally had set up trade promotion organizations to enhance exports.

The question is whether market access strategies work in practice and whether they can genuinely spur firm growth. This is important because evidence from randomized controlled trials (RCTs) on interventions like business training and microcredit often shows mixed results.

A Review of Studies in Low- and Middle-Income Countries

The Abdul Latif Jameel Poverty Action Lab (J-PAL) at the Massachusetts Institute of Technology (MIT) sought to find out. A review of 15 randomized evaluations and 4 non-experimental evaluations from 14 low- and middle-income countries (LMICs) examines interventions like training in marketing skills, as well as those that linked firms with other firms, encouraged more participation in public tender processes, and connected firms and consumers through digital market infrastructure. A new policy brief, including three key lessons, offers some answers.

First, market access can significantly boost business growth. Across the LMICs where the evaluations were conducted, improving access to buyers and markets often helped small firms grow considerably because they led to new sales for the firms, helped them connect with new types of buyers, and increased information sharing and learning between firms. In Costa Rica, a quasi-experimental evaluation found that after small and medium-sized enterprises began supplying to multinational corporations, they were likely to employ more workers, sell more to other firms, and achieve higher productivity four years later. In Egypt, connecting small rug makers with a chance to export to buyers in the United States and Europe increased their profits by 16-26%. And in China and Ghana, facilitating connections among peer firms improved business performance by making it easier for them to share valuable information and build new business relationships.

Policies and Programs Based on Boosting Market Access

Second, interventions aimed at boosting market access are often effective at boosting sales and profits regardless of whether new sales come from foreign buyers, domestic corporations, or government contracts. While the Costa Rica and Egypt studies focused on links to global value chains and the participation of small firms in international trade, local corporations and governments can also play the role of buyers. For example, OECD data shows that public procurement in Latin American and Caribbean countries averages around 17.4% of total government expenditure. In Liberia, small- and medium-sized enterprises that participated in a weeklong training program to help them bid and win formal contracts from larger corporations and the government saw an increase in sales. Researchers in Brazil have documented similar growth in firms after they win a public procurement contract.

For policymakers and donors, this suggests there are a variety of potentially effective programs that can support small firms. Finding new buyers is often costly for most small businesses in LMICs. But bigger institutions-including global buyers, trade promotion organizations, and government procurement departments-can play a crucial role in helping them grow by improving their market access.

A Need for More Research

Third, more research is needed. Despite promising evidence from RCTs, policymakers and stakeholders still need to better understand which market access programs work best for different firms. Not all small firms, preliminary evidence suggests, are ready to export. In Colombia, for example, consulting services provided to small- and medium-sized enterprises to help increase their exports did not have an impact. This indicates a need to test methods and tools for selecting the right firms for industrial and export promotion policies.

Research should also shine a light on both the direct and indirect effects of these programs, including showing which types of programs boost productivity and create jobs rather than merely shifting business from non-supported firms to supported ones (business stealing). Finally, more data and research are needed to inform the design of digital platforms, government procurement systems, and access to infrastructure to encourage greater participation of female business owners and young entrepreneurs in profitable markets.

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