Unreliable Firms: Evidence from Rwanda

Citation:

Vishan Nigam and Brandon Tan. Working Paper. “Unreliable Firms: Evidence from Rwanda”.
NEUDC 2021 Slides357 KB

Abstract:

Unreliability -- the failure to consistently service a buyer week after week -- is an oft-mentioned constraint on trade in developing countries, yet direct observation of firm-level reliability has proved elusive. Leveraging data on the timing of all firm-to-firm transactions in Rwanda, we directly measure reliability of transactions within buyer-seller relationships and document several facts about reliable firms. First, sellers with larger formal sales are disproportionately reliable, as are MNCs, exporters, and their domestic suppliers. Second, reliability matters for the supply chain, in that the average customer of and supplier to a reliable firm is also more reliable. Third, event study evidence suggests that supplying an MNC increases seller reliability even when servicing non-MNC buyers. To interpret these findings, we write down a stylized model in which the firm's cost of improving reliability depends on its choice of supplier. Together our findings highlight the importance of reliability for firm-level trading patterns, as well as the potential impact of special firms such as MNCs on the adoption of reliable practices elsewhere in the trading network.
Last updated on 11/23/2021