governments seeking to scale this up for assisting a large number of firms. In another experiment, Bruhn et al. (2018) shows that using local consultants can also improve business practices and performance and is less costly (US$12,000 per firm) than hiring internationally renowned consulting firms as in Bloom et al. (2013). Iacovone et al. (2019) tested two alternative approaches to improving management among firms producing auto parts in Colombia. The first uses intensive and expensive one-on-one consulting, while the second draws on agricultural extension approaches to provide consulting to small groups of firms at approximately one-third of the cost of the individual consulting services. Their results show that both approaches lead to improvements in management practices of a similar magnitude (8-10 percentage points), so that the new group-based approach dominates on a cost-benefit basis.<sup>9</sup> This points to the potential of group-based approaches as a pathway to scaling up management improvements.

_Finally_ , given the evidence that management can be improved, our analysis of the survey data points to some of the shortcomings in the incentive system for firms that inhibit adoption of structured management practices. For example, management practices in Croatia are negatively correlated with firm age, and especially so in low-tech manufacturing and non-knowledge intensive services. This finding is surprising when compared with the United States or Mexico, where firms tend to improve their management practices as they age due to the “up-or-out” dynamics. The hypothesis is that as firms grow their production processes become more complex and in order to stay put in the market, they should have to upgrade their management capabilities. However, in Croatia, firms continue to survive without having the need to do so. This indicates the possibility that in Croatia learning and market selection is not operating perhaps due to the lack of pro-competitive forces.<sup>10</sup> Likewise, the finding that exporting firms are better managed confirms that selection and learning mechanism can work in Croatia if firms operate in competitive conditions of an international market. More precisely, management score of a manufacturing exporter in Croatia is likely to be higher by 7 percent than an average firm. The fact that this result is mainly driven by high-tech manufacturing exporters, where management score is likely to be 13 percent higher, points to the potential for improving management capabilities among other firms and sectors.

The paper beyond this point is organized as follows: Section 2 introduces the methodology of the management survey and presents some descriptive statistics for firms in Croatia. Section 3 presents the methodology for computing management scores, and the main descriptive results on the relationship

> 9 Their results suggest that group-based intervention led to increases in firm size over the next 1.5 years, including a statistically significant increase in employment, while the impacts on firm outcomes are smaller and statistically insignificant for the individual consulting. 10 In the United States it is well known that “up-or-out” dynamics in which unsuccessful firms exit or are bought out by more successful competitors who absorb the labor and capital released by exiting firms drives productivity and business dynamism (Haltiwanger et al., 2013). In the case of Croatia, such selection dynamics does not seem to work in a similar way, and that firms that are badly managed still continue to survive.