1. Capital Constraints in Micro ‐ Enterprises: the Impact of Cash Transfers Jeremy Shapiro Princeton University, Busara Center for Behavioral Economics May 12, 2015

2. Motivation 2 1.Capital matters for growth 2.Capital matters more for small firms ? 3.Does capital matter for joint producer- consumer households ?

3. Returns to micro enterprises are from cash and capital transfers are large 3  Recipients: Sri Lankan microenterprises (<$1,000 capital)  Intervention: cash or in-kind grants ($100 – $200)  Results: ROC of 55%–63% per year 1  Recipients: aspiring entrepreneurs in Uganda, formed into groups  Intervention: training and cash grant ($382 per group member)  Results: 38% increase in earnings 2  Recipients: Ghanaian microenterprises (no employees)  Intervention: cash and in-kind grant ($120)  Results: 8% - 25% increase in profits 3 1 McKenzie et al. (2008) 2 Blattman et al. (2013) 3 Fafchamps et al. (2011)

4. Cash transfers to households have exploded in scale and scope - impacts on productive outcomes? Conditional cash transfers 1997 - 2008 CTs reach ~ 1B people in the developing world (DfID 2011) 4

5. A particular example: GiveDirectly 5

6. GiveDirectly – details 6 1.Identification – Eligibility determined by general poverty (residence in mud hut) – Verified by multiple field audits and satellite imagery 2.Transfer – Completed by M Pesa (cell phone money transfer service) – Recipients receive ~$1,000 with 90% efficiency

7. Results: cash transfers positively impact the productive activities of “general households” 7 Monetary outcomes Control group meanTreatment effect (<10% sig) Treatment effect (not sig)

8. Implications  High returns for small enterprises – lends support to policies that help small entrepreneurs obtain capital  Smaller, but significant, productive benefits to general producer-consumer households (very microenterprises) -Small impact, big scale: these represent hundreds of millions of low-income households -Development (e.g., GDP) effects through productivity impacts a consideration alongside poverty reduction effects of broad-based cash transfers 8

9. Thank you. jps9@princeton.edu jeremypshapiro@gmail.com 9