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    • Technological innovation is an essential driver

    2018-10-25

    Technological innovation is an essential driver of human and economic development. It can improve the functioning of markets (), promote government accountability (), build human capital (), and reduce the risks we face from global environmental change (). Yet designing technologies that improve the lives of the poor is notoriously challenging. The path from ideation to scale-up is rarely linear, or even successful.
    Introduction In a 2008 nationally representative survey of urban microenterprises in Sri Lanka, 81.3 percent of firms with no employees say they do not keep any accounts for their business. This lack of formal recordkeeping is true of many microenterprises around the developing world, and makes it influenza a virus challenging for researchers to collect accurate data on inventory levels, sales, and profits in such firms (Vijverberg, 1991; Daniels, 2001; De Mel et al., 2009). The large genuine volatility of incomes in such businesses (Collins et al., 2009; Fafchamps et al., 2012) can make recall more difficult, and make it harder to distinguish measurement error from actual fluctuations. A further complication arises in evaluations of interventions, where the receipt of a program (such as access to credit) may affect individual’s incentives to report accurately, or, in the case of business training, may even change the accuracy with which respondents can report on their business. As a result many studies of microenterprises suffer from high levels of imprecision and of item-response on profits and sales, or otherwise struggle to measure these concepts at all (see McKenzie and Woodruff (2014) for a review). Yet accurate measurement of inventory levels, turnover, and profits is crucial for answering many questions of economic interest, such as determining the returns to credit or training, to understanding choices between wage work and self-employment, and measuring levels of poverty and inequality. New technologies have begun to offer the potential to improve measurement in a number of domains (McKenzie and Rosenzweig, 2012), raising the question of whether technology can also provide an objective (not self-reported), accurate, and time- and cost-effective measure of business activity in microenterprises? This paper reports on a trial of the use of radio frequency identification (RFID) tags to measure inventory levels and turnover in Sri Lankan microenterprises. RFID tags are increasingly being used in large U.S. retailers like Kohls, Walmart, LLBean, and Best Buy for inventory management. In principle one can apply the tags to new stock as it comes in, and then use a reader to measure stock levels at any point in time without having to physically scan items one by one as would be the case with bar codes. Measuring the flow of stock coupled with price data then can provide data on sales, which could then in turn be coupled with unit cost or mark-up data to provide a measure of profits. There are three main findings of this proof of concept trial. First, available off-the-shelf technology is more difficult to use and more cumbersome than we had envisaged, and than is suggested by media accounts of the spreading use of this technology. Setting up the system required a period of fine-tuning and overcoming technical obstacles, and then the time taken to scan inventory levels at a firm was approximately 30min. per firm. Second, in terms of proof of concept, our results show that (i) it is possible to get firms to agree to use this technology; (ii) the technology is able to work reasonably well for paper products and some clothing items; but (iii) the read-efficiency of the technology is very poor for many products offered by microenterprises, and varies from day to day. This poor read efficiency results from technological constraints with reading the tags in the presence of interference from liquids, metals, and stacked products. As a result, RFID technology does not enable accurate measurement of stock levels or turnover in most microenterprises. Third, survey questions on stock levels are much more accurate in terms of matching the results of our physical stock counts, providing some reassurance that relying on survey self-reports can yield reasonably accurate measurement (although this should be caveated by noting that owners may have paid extra attention to these items because of the study and so our surveys may be unusually reliable).