Working Paper: CEPR ID: DP8466
Authors: Marcel Fafchamps; David J. McKenzie; Simon Quinn; Christopher Woodruff
Abstract: Standard models of investment predict that credit-constrained firms should grow rapidly when given additional capital, and that how this capital is provided should not affect decisions to invest in the business or consume the capital. We randomly gave cash and in-kind grants to male- and female-owned microenterprises in urban Ghana. Our findings cast doubt on the ability of capital alone to stimulate the growth of female microenterprises. First, while the average treatment effects of the in-kind grants are large and positive for both males and females, the gain in profits is almost zero for women with initial profits below the median, suggesting that capital alone is not enough to grow subsistence enterprises owned by women. Second, for women we strongly reject equality of the cash and in-kind grants; only in-kind grants lead to growth in business profits. The results for men also suggest a lower impact of cash, but differences between cash and in-kind grants are less robust. The difference in the effects of cash and in-kind grants is associated more with a lack of self-control than with external pressure. As a result, the manner in which funding is provided affects microenterprise growth.
Keywords: microenterprises; Ghana; conditionality; asset integration
JEL Codes: C93; O12; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inkind grants (H81) | increase in monthly profits for female-owned firms (J16) |
| cash grants (H81) | negligible effects on monthly profits for female firms (D22) |
| self-control issues (D91) | effectiveness of cash grants (F35) |
| form of capital provision (G32) | affects investment decisions and business growth (G31) |
| cash grants (H81) | variable results for male-owned firms (L26) |