Private sector development: The role of education and business training

There is little doubt that private sector development is important for development, and that enabling the poor to become and succeed as entrepreneurs can be an important pathway out of poverty. However, in doing so potential entrepreneurs face a range of constraints which might limit their opportunities and performance as entrepreneurs. The microcredit system has attempted to address the important constraint of capital, but there are additional possible constraints that poor people face. Lack of education, or human capital, is one of these constraints. While we know that education can have an effect on entrepreneurship, we are less sure about how large the effect of education and training is on entrepreneurial success, however. Establishing the effects of education is essential to determining the payoff to interventions to increase levels of education, which enables us to compare the return to these interventions compared to other use of scarce public funds. We will in this project analyze one factor that impedes the development of a dynamic private sector in Bangladesh: education, business skills and lack of training.

This project aims to identify more precisely the returns to improved education in terms of increased entrepreneurial success. The objective is to inform policies towards the SME sector in a way that improves the welfare situation of the entrepreneurs. If returns to education are higher than usually assumed, policy makers and the donor communities should step up these types of human capital activities; if they are lower, funds should be reallocated to other purposes. Our empirical approach allows us to compare directly the returns to education compared to other factors like entrepreneurs’ health, providing a direct input to the discussion of which means are the most effective ones to reducing poverty in Bangladesh.