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Nov. 24, 2020

Finding new suppliers and customers can be a challenge for small firms in rural Tanzania. In her guest post on the World Bank’s Development Impact blog, Jess Rudder discusses how gaining access to a new mobile phonebook app helps make it easier for small firms to connect with others up and down the supply chain. Using survey and usage data from over 500 small, rural firms in central Tanzania she looked at how access to the app affected the productivity of participating small firms, lowered the cost of developing new business contacts, and how it affected new or existing contracts.

Her research was primarily focused on how lowering search costs for these firms through the introduction of the digital phonebook might change how firms “source and sell goods and engage in relational contracting with their suppliers and customers.” Relational contracting might include supplier-provided credit on input purchases or price discounts to existing customers; it is the added benefit from having an established relationship with suppliers or customers. By making it easier for firms to find new suppliers or customers, are firms likely to increase or decrease this relational contracting? Jess suggests that “being listed in the phonebook caused firms to update their valuation of relational contracts and respond by negotiating better terms with suppliers and customers…. It shows that small changes to the search cost structure have the power to re-shape the way that firms transact along their supply chain.“

For more on the results and methods presented in the blog, you can read her job market paper, or for other publications from Jess Rudder on development and agricultural economics, visit her website.

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