7.5 The Difference between Vouchers and Grants

complementary policy measures such as advisory services can step in to maximize the effects of financing provided by the loan scheme. ■ A strong legal framework for upholding creditor rights. The feasibility of establishing and maintaining a credit guarantee scheme depends on sound processes for collection and recovery of assets in case of default and effective contract enforcement. These are preconditions for the effective design, implementation, and evaluation of a credit guarantee scheme.

5. Grants and Vouchers

Two common instruments to support technology upgrading are grants and vouchers (see box 7.5). Grants are a direct allocation of funding from public agencies to finance all or part of a technology project. In the case of matching grants, public agencies match a percentage of the contribution made by the applicant to ensure the applicant’s commitment to the activity. Vouchers are small, entitlement-based grants that do not need to be repaid. They are used to incentivize firms to digitalize with simple projects that require ready-made digital solutions, and to push firms to collaborate with technology providers. With effective auditing, vouchers require only light management. The simplicity of administration is a key attraction of voucher schemes; however, they require

BOX 7.5 The Difference between Vouchers and Grants

A voucher is a type of grant with specifically defined characteristics regarding the selection process, implementation mechanisms, and value of the grant. When choosing one instrument over the other, policy makers need to consider the following important features of vouchers compared to regular (matching) grants: ■ Vouchers are entitlement based rather than competition or merit based; that is, applicants can get vouchers if they fulfill the selection criteria set in advance. ■ Vouchers are small in value. Typically, the face value of vouchers is no more than a few thousand dollars, while regular grants can be much larger. ■ Vouchers focus on behavior change: inducing small and medium enterprises and technology providers to collaborate and begin a process of technology upgrading, often of digital technologies. By contrast, regular grants typically focus on input additionality—implementing the adoption of a technology or digital solution—and are intended to crowd in private investment in technology projects. ■ Vouchers rely heavily on brokers, which perform the functions of advertising, selecting technological solutions, vetting technology providers, monitoring, and ex post verification. ■ Vouchers are simple to administer. Disbursement occurs when technology providers redeem vouchers, and firms often do not receive any value except the technical assistance.

Source: Cirera et al. 2020.

an established brokerage system to link recipients with digital solution providers and ensure compliance through random audits or other mechanisms.

Both grants and vouchers are based on the idea that inducing more firms to upgrade their technologies generates positive spillovers or externalities. One channel of spillovers is through the know-how embedded in workers and managers who use these more sophisticated technologies that can spill over to other firms. It is important that policy makers have in mind the idea of demonstrating such spillovers or externalities when justifying this type of intervention.

Grants and vouchers are often used to subsidize part of the costs of the services of extension services (BAS, TES, TCs). The government usually provides a voucher or grant to the SMEs to purchase the services from a third party. When the government provides the service directly, they generally have centers with advisers at the regional and local levels that deliver the services to SMEs, as described. In this direct provision model, it is critical that the advisers have knowledge and credibility and can quickly add value to SMEs. This is often the critical failure for implementing this type of instrument in developing countries.12 Therefore, a realistic assessment of the quality and depth of the supply of these services is needed before deciding on the scope of the delivery model.13 When implemented externally through the grants or vouchers, it is important that public agencies maintain a list of technology and knowledge providers that is monitored to guarantee the quality of services. In the case of vouchers, often these lists are connected to a list of preapproved providers of technology solutions, software licenses, customization services, and training.

An extensive description of how to design these types of instruments can be found in Cirera et al. (2020). One important element in the case of grants is the matching component. When matching rates by firms are high, they may not provide sufficient incentive to compensate for the spillovers generated and take-up may be low. When matching rates are too low, they may substitute for private funding and create low additionality. One good practice is to ask applicants to disclose in advance what percentage of the project they require to be financed and without which they will not engage in the technology upgrading project. That can help reveal beneficiaries’ willingness to pay and maximize additionality.

6. Other Instruments to Support Technology

Other policy instruments to support technology tend to be more oriented toward the generation and commercialization of technologies and the links to universities. Ideally, public agencies should have mechanisms to link both supply and demand instruments, so the supply of technologies targets the needs of the private sector.

Recently, there has been a proliferation of regulatory sandboxes, which aim to create a regulation-free environment to develop and test certain digital technologies and

business models that may not comply with current regulatory frameworks. In practice, they temporarily suspend some regulations until the technology and business model have been deemed to be fully tested.

Evidence of Impact

There is little evidence of the impact of policies that aim to promote technology upgrading. More evidence is needed, especially in relation to programs that seek to increase digitalization among SMEs. Much of the existing evidence has concentrated on smallholder agriculture in developing countries, especially Africa and India. Fewer studies have focused on manufacturing technology services, and these tend to be more qualitative studies.

Recently, Alfaro-Serrano et al. (2021) systematically reviewed 80 studies, of which 79 are from developing countries, drawn from a universe of 42,462 candidates, and covering about 4.8 million firms. Their definition of technology is broad and includes management and organizational processes. The study also explores different types of interventions, including direct and indirect financial support, regulatory measures, and other kinds of support such as information. Of the 33 studies they analyze for manufacturing and services, 19 show a positive and statistically significant effect on technology adoption. Of the 47 studies for agriculture, they find positive and statistically significant effects for 20, and no significant effect on adoption in the other 27. Some of the studies with positive impacts concentrate on management and organization processes and do not focus much, if at all, on upgrading technologies and equipment. The results are even more mixed regarding the impact of these interventions on performance outcomes, such as sales growth or productivity. The large variation in context makes it difficult to generalize recommendations to guide policy.

Cirera et al. (2020) and McKenzie et al. (2021) also summarize some of the evidence about the impact of several of the instruments discussed. Starting with BAS, most of the evidence suggests positive impacts on business performance. In perhaps one of the most influential studies, Bloom et al. (2013) find in a randomized experiment with large textile plants in India that intensive consulting intervention significantly increased output per worker and total factor productivity, reduced inventory levels and the rate of quality defects, and improved management practices. A follow-up study (Bloom et al. 2020) nine years later shows the interventions in management quality and productivity had long-lasting effects. Other studies identifying positive effects on BAS include Wren and Storey (2002) for the United Kingdom; Cruz, Bussolo, and Iacovone (2018) for Brazil; Bruhn, Karlan, and Schoar (2018) for Mexico; and Iacovone, Maloney, and McKenzie (2022) for Colombia. These studies also do not directly explore the implementation of technology upgrading.

Evidence from interventions providing management training and equipment directly suggest a complementary effect. Giorcelli (2019) compares the effects of management training trips for Italian managers to US firms that provided technologically advanced machines to Italian companies.14 The results show that those firms that sent their managers to the United States increased sales growth for at least 15 years after the program. The effect was even larger for those firms that benefited from new machines that were provided, suggesting these were complementary interventions. Firms that only received new machines also improved the performance, but these gains flattened out over time.

An alternative to consulting services emphasized by Anderson and McKenzie (2022) is to provide businesses with support to insource or outsource knowledge by finding specialized professionals to help perform general business functions, such as marketing and business administration. Based on an experiment in Nigeria, the authors find that this option led to more effective outcomes than consulting services. BAS can also be used from a broader perspective, such as providing firms with diagnostics and advice to find solutions in the market.

The other two instruments, TES and TCs, are more directly linked to the process of technology upgrading, but evidence is even scarcer for them than for BAS, except in the area of agriculture. An extensive body of studies provides evidence of the positive impact of extension services for agriculture. A large share of this literature focuses on small business in agriculture in developing countries (Owens, Hoddinott, and Kinsey 2003; Kondylis, Mueller, and Zhu 2017; Maertens, Michelson, and Nourani 2021), suggesting positive effects for these interventions, which range from providing information to training to showcasing the use of new technologies.

For manufacturing and services, there is some evidence, such as Jarmin (1999) and Shapira, Youtie, and Kay (2011), but the use of randomized control trials or quasiexperimental approaches is less common. The same applies for TCs. In terms of historical experience, Japan has had a long history of utilizing TCs as a policy instrument to boost regional innovation and competitiveness, dating back to the 1880s or so (Fukugawa 2009). These technology centers have long served as the cornerstone of local technology service provision in Japan (Shapira 1992).

Most of the existing studies evaluating TCs focus on design features, with little emphasis on their impact, because it is difficult to randomize services within centers and to find counterfactual firms. An exception is a recent study focusing on the Fraunhofer Society, which suggests a positive effect of their interventions on firm performance (see box 7.6).15

Overall, the evidence, although scarce, suggests that policy instruments to promote technology tend to have a positive impact on technology upgrading and firm growth. However, caution is warranted in interpreting this evidence. Most of the evidence