<!-- Start of picture text --> Registration for Marks, Patents, Utility Models, and Industrial Designs Firms Participated in Training Programs<br>Proportion of Croatian Manufacturing Firms, 2017 Croatian Manufacturing Firms, 2017<br>1 2 3 4<br>1 2 3 4<br>Quartiles of Management Score<br>All Regions Except Slavonia Slavonia All Regions Except Slavonia Slavonia<br>.3 .8<br>.6<br>.2<br>.4<br>Proportion of Firms (%)<br>.1<br>.2<br>0<br>0<br><!-- End of picture text --> How do these results inform firm interventions designed for enhancing aggregate productivity? A simple answer to this question is that management can be improved with concerted effort. For example, an experiment with 17 textile firms in India provides a proof-of-concept that intensive individualized consulting can deliver lasting improvements in the practices of badly managed firms, resulting in productivity improvements by 17 percent (Bloom et al., 2013). Although this intervention improved management and firm performance, it came at a huge cost of approximately $75,000 per treated firm. This high cost is likely to be prohibitive for many small and medium enterprises (SMEs) to finance themselves, and for governments seeking to scale this up for assisting a large number of firms. To counter this, 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>7</sup> This points to the potential of group-based approaches as a pathway to scaling up management improvements.

_Finally_ , given that management can be improved, our analysis of the survey data already points to some of the shortcomings in the incentive system for firms that inhibit adoption of structured management practices. For example, results suggest that management practices are negatively correlated with firm age, and especially so in lowtech manufacturing and non-knowledge intensive services. Moreover, the magnitude of this negative association is larger in Slavonia. This finding is surprising when compared with the United States or Mexico, where firms tend to improve their management practices as they age. The hypothesis is that, as firms grow, their production processes become more complex and, in order to stay in the market, they have to upgrade their management capabilities. However, in Croatia, firms continue to survive without the need to do so. This indicates the possibility that in Croatia learning and market selection are not operating perhaps due to the lack of pro-competitive forces.<sup>8</sup> Likewise, the finding that exporting firms are better managed confirms that the selection and learning mechanism actually works in Croatia, if firms compete in international markets. More precisely, the management score of a manufacturing exporter in Croatia is likely to be higher by 8 percent than for an average firm. The fact that this result is mainly driven by high-tech manufacturing exporters in the other regions of Croatia, where the management score is likely

> 7 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.

> 8 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, drive productivity and business dynamism (Haltiwanger et al., 2013). In the case of Croatia, such selection dynamics do not seem to work in a similar way, and firms that are badly managed continue to survive.

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