Working Paper: NBER ID: w26346
Authors: Abhijit Banerjee; Emily Breza; Esther Duflo; Cynthia Kinnan
Abstract: Can microcredit help unlock a poverty trap for some people by putting their businesses on a different trajectory? Could the small microcredit treatment effects often found for the average household mask important heterogeneity? In Hyderabad, India, we find that “gung ho entrepreneurs” (GEs), households who were already running a business before microfinance entered, show persistent benefits that increase over time. Six years later, the treated GEs own businesses that have 35% more assets and generate double the revenues as those in control neighborhoods. We find almost no effects on non-GE households. A model of technology choice in which talented entrepreneurs can access either a diminishing-returns technology, or a more productive technology with a fixed cost, generates dynamics matching the data. These results show that heterogeneity in entrepreneurial ability is important and persistent. For talented but low-wealth entrepreneurs, short-term access to credit can indeed facilitate escape from a poverty trap.
Keywords: microfinance; poverty traps; entrepreneurship; heterogeneity
JEL Codes: D25; O1; O14; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| access to microcredit (O12) | increase in business assets (G31) |
| access to microcredit (O12) | increase in revenue (H27) |
| microfinance benefits persist (O16) | escape from poverty trap (I32) |
| entrepreneurial ability (L26) | differential impacts of microfinance (F63) |
| microfinance (G21) | business outcomes for GEs (L21) |
| microfinance (G21) | negligible impacts on non-GEs (F69) |