based on hierarchy of knowledge. Peiex is a program from the Brazilian Export Promotion Agency (Apex-Brasil) that focuses on enhancing Brazilian small and medium firms’ (SMEs’) competitiveness by providing coaching and consulting on best management and production practices.<sup>5</sup> This paper is closely related to Bloom et al. (2012), who find significant effects of a management consulting program on firms’ performance in India.<sup>6</sup> We measure the way firms organize knowledge based on occupations that require different levels of skills and competencies, following the conceptual framework in Garicano (2000) and Caliendo and RossiHansberg (2012). Consistent with this framework we show that firms organize knowledge following a hierarchy in a pyramid shape, which is compatible with the hypothesis that production workers learn the standard production problems and managers deal with more exceptional ones. Our analysis uses a unique matched employer-employee firm-level data set covering the full manufacturing sector in Brazil with a panel of about 310,000 firms (an average of 236,645 firms per year), with information on more than 7 million employees, from 2007 to 2010, and more than 5,000 treated firms.

This measure of hierarchy of knowledge takes into account different levels of competencies and skills of workers limited to 4 layers. If a firm already has 2 layers and decides to hire more workers at the same layers, which means same occupations previously available at the firm, we assume that there is no change in the knowledge-based hierarchy of the firm. Hence, this is not about increasing the number of directors or manager positions itself; neither are we assuming that the more managers, the better. Instead, increasing the number of layers in this case means that a firm is incorporating workers with different levels of competency and specialized knowledge in solving different problems at the firm. The idea is that controlling for the number of employees, firms that expand reorganizing knowledge can become more competitive by having lower marginal cost as a function of the necessary knowledge among production workers and gains of productivity through specialization. Apart from the fact that workers in new layers have more average years of schooling, the concept of occupation also takes into account the use of their knowledge by considering their activities at the firm. Thus, we capture one type of organization, but one which matters for performance.

To identify the effect of the program, we rely on an instrumental variable approach and exploit the exogenous variation provided by a regional roll-out for its implementation. The program was implemented in late 2008/2009 through regional units around the country. A critical eligibility rule is that firms should

> 5Brazil has a long tradition of programs aiming to support small business, by providing training on entrepreneurship and management consulting. For example, SEBRAE (Portuguese acronym for the Brazilian Service of Support for Micro and Small Business), a private entity of public interest that offers courses, consultancy, training, and sectoral publication to SMEs, started its activities in 1972.

> 6In a randomized controlled trial (RCT), Bloom et al. (2012) show that receiving consulting on better management practices raised by 11% the productivity of treated firms. In addition, the decision making in these firms became less centralized and they also increased the use of computers.

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