Temporary managerial jobs in the Dominican Republic pushed individuals into business creation and led to positive effects on firm growth. Policymakers need to balance broad access to these opportunities with focused support to maximise firm creation and economic growth.
Entrepreneurship is a fundamental input to the economy, with new businesses creating jobs, enhancing competition, and spurring innovation (Haltiwanger et al. 2013). Recognising its importance, and faced with low rates of formal business creation and competition, policymakers in the developing world have made entrepreneurship a key area of focus. Interventions like microfinance schemes (e.g. Banerjee et al. 2015) and basic business training programmes (reviewed in McKenzie and Woodruff 2014) have been implemented in hopes of stimulating new enterprises (see VoxDevLit on "Training Entrepreneurs"). However, many of these interventions have shown limited effectiveness in promoting entrepreneurship.
In our research (Pecenco et al. 2024), we explore how providing temporary managerial jobs—a scheme different from those prevalent in the literature and policy practice—affects business creation. We study this in the context of the Dominican Republic's (DR) sorteo de obras (lottery of works), a procurement scheme that randomly assigns high-value, managerial contracts for the construction of public works. Because our setting allows us to observe repeated application choices over time, we are further able to identify those most likely to benefit from management-improving interventions, offering insights on how to best design and target entrepreneurship policies.
Random procurement lotteries in the Dominican Republic
In 2006, the DR reformed its public procurement system to enhance transparency and democratise access to government contracts. One key component of this reform was the introduction of the lottery of works, a procurement method that awards contracts to qualified applicants randomly.
Figure 1: Entrants and winners
Note: This figure shows the number of entrants and winners by year of lottery event.
Between 2012 and 2015, over 2,300 such contracts were awarded, assigning recipients—mostly architects and engineers—to manage the construction of schools and hospitals. In part highlighting the lack of opportunities prior to the reform and private sector under provision of advanced experience, the lotteries were oversubscribed by the architecture and engineering community in the country, with over 26 entrants per available contract (Figure 1). Lottery winners assumed full managerial responsibilities for the construction projects, including hiring employees, budgeting, procuring materials, subcontracting, and overseeing project completion. The application costs primarily involved completing necessary paperwork and attending the public lottery events.
Crucially, the random allocation of contracts provides a rare opportunity to study the causal impact of managerial jobs on entrepreneurship. In our setting, there is variation in both who gets the contract and the contract amount (value), which helps us to know how these contracts may affect recipients through either managerial experience versus future capital. While previous research has indicated the importance of managerial experience for fostering entrepreneurship (Liang and Lazear 2018), establishing a clear causal link has been difficult. By leveraging the variation in our setting with high-quality administrative and survey data, our study advances three main causal insights on the role of managerial jobs and entrepreneurship.
Managerial jobs spur entrepreneurship
1. Managerial jobs push individuals out of wage employment and into firm creation.
As winners commence their contracts (Figure 2A), which tend to remain open for up-to three years upon starting, they leave wage employment. Five years out from having won a contract, there is a 24% decrease in wage employment among lottery winners compared to nonwinners (Figure 2B). This decline does not reverse even as winners complete their contracts. Beginning in year 2 as contracts start to conclude, firm ownership among lottery winners becomes significantly higher compared to nonwinners (Figure 2C). By period 5, lottery winners have 0.053 more firms on average.
2. Winners create growing businesses.
Four to five years later, we observe the expansion of the newly created firms (given by the number of employees) (Figure 2D). Relative to the benchmark of firms created by nonwinners over the same period, firms created by winners are more likely to hire and grow.
3. Experience, not capital, most likely drives the result, especially for younger participants.
Because higher contract values leave higher incomes for the winners, if capital were the main constraint for firm creation, we should expect that the individuals that randomly receive higher value contracts should have higher rates of business creation. We do not find this. The impact of the contracts is strongest among the least experienced, younger recipients (ages 20–40), who are significantly more likely to start firms. Together, this suggests that the aspects of managerial skill and experience gained from overseeing projects are important elements for the transition to entrepreneurship.
Figure 2: Sector participation for individuals
Note: This figure illustrates the main sectoral effects of winning a lottery contract, highlighting the standardised timing of the treatment and the evolution of outcomes over time. The solid lines are regression coefficients and the dotted lines represent 95% confidence intervals.
Self-selection into the procurement lotteries and implications for targeting
The ease of entry into this procurement scheme for many applicants creates the opportunity for many people to receive these government contracts, and hence to start businesses in the future. A natural question for policymakers is whether some applicants would be more or less likely to start businesses as a result and how to potentially target those individuals most likely to start businesses. Since who decides to apply is the main driver of targeting in this context, we would like to understand how individual choices relate to business creation and how the government can induce differential application rates in the population.
To address these questions, we analyse individuals' participation choices across the many available lotteries to uncover participation preferences across the population. We find individuals who have a greater preference for these contracts are more likely to start businesses even without the programme, consistent with them having an underlying motivation towards entrepreneurship. Furthermore, those who enter more lottery events are even more likely to become firm owners as a result of winning, suggesting they are also more likely to utilise the contracts’ various benefits for business creation.
By modelling lottery application choices and estimating preferences, we can explore how counterfactual changes in programme design could impact individual entry and business creation patterns. Our findings indicate that the government could enhance entrepreneurship by adjusting programme attributes to encourage the selection of individuals with higher potential gains, although this comes at the cost of reducing access to these contracts in the population, which may itself have other benefits valued by policymakers.
How to balance the trade-off between targeted support and broad access
Our findings suggest that providing managerial jobs can play an important role in the transition into formal firm creation in developing countries. This is particularly important given there are multiple reasons to think these kinds of jobs are likely underprovided in markets with weak contract enforcement. Firms may underprovide such opportunities due to the risk that employees might leave to start competing ventures or because of agency issues in delegating to managers. In contrast, public employment programmes in developing countries often emphasise low-skill jobs, which may offer temporary income support but contribute minimally to long-term skill development. Initiatives that encourage young people to acquire managerial skills are likely to be more beneficial for nurturing entrepreneurship.
The design of such programmes is critical. Policymakers must balance broad access with targeted support to maximise the impact on firm creation and economic growth. In our setting, the lottery's ability to induce self-selection among individuals with high entrepreneurial potential highlights the importance of targeted interventions. While equality of access in procurement is important for a number of other reasons, it may also reduce the entrepreneurship spurring potential of the management contracts, posing a trade-off for policymakers.
References
Banerjee, A, E Breza, E Duflo, and C Kinnan (2019), “Can microfinance unlock a poverty trap for some entrepreneurs?” National Bureau of Economic Research, No. w26346.
Haltiwanger, J, R S Jarmin, and J Miranda (2013), “Who creates jobs? Small versus large versus young,” Review of Economics and Statistics, 95(2): 347–361.
Liang, J, H Wang, and E P Lazear (2018), “Demographics and entrepreneurship,” Journal of Political Economy, 126(S1): S140–S196.
McKenzie, D, and C Woodruff (2014), “What are we learning from business training and entrepreneurship evaluations around the developing world?” The World Bank Research Observer, 29(1): 48–82.
Pecenco, M, C Schmidt-Padilla, and H Taveras (2024), “Opportunities and entrepreneurship: Evidence on advanced labor market experience,” Working Paper.