When is Capital Enough to Get Female Microenterprises Growing? Evidence from a Randomized Experiment in Ghana

60 Pages Posted: 11 Jul 2011 Last revised: 29 Oct 2014

See all articles by Marcel Fafchamps

Marcel Fafchamps

Stanford University - Freeman Spogli Institute for International Studies

David J. McKenzie

World Bank - Development Research Group (DECRG); IZA Institute of Labor Economics

Simon Quinn

University of Oxford

Christopher M. Woodruff

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2011

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.

Suggested Citation

Fafchamps, Marcel and McKenzie, David John and Quinn, Simon R. and Woodruff, Christopher, When is Capital Enough to Get Female Microenterprises Growing? Evidence from a Randomized Experiment in Ghana (July 2011). NBER Working Paper No. w17207. Available at SSRN: https://ssrn.com/abstract=1882175

Marcel Fafchamps (Contact Author)

Stanford University - Freeman Spogli Institute for International Studies ( email )

Stanford, CA 94305
United States

David John McKenzie

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Simon R. Quinn

University of Oxford ( email )

Christopher Woodruff

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States
858-534-0590 (Phone)
858-534-3939 (Fax)

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