Macroinsurance for Microenterprises: A Randomized Experiment in Post-Revolution Egypt

38 Pages Posted: 20 Apr 2016

See all articles by Matthew Groh

Matthew Groh

World Bank

David J. McKenzie

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

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2014

Abstract

Firms in many developing countries cite macroeconomic instability and political uncertainty as major constraints to their growth. Economic theory suggests uncertainty can cause firms to delay investments until uncertainty is resolved. A randomized experiment was conducted in post-revolution Egypt to measure the impact of insuring microenterprises against macroeconomic and political uncertainty. Demand for macroeconomic shock insurance was high; 36.7 percent of microentrepreneurs in the treatment group purchased insurance. However, purchasing insurance does not change the likelihood that a business takes a new loan, the size of the loan, or how the loan is invested. This lack of effect is attributed to microenterprises largely investing in inventories and raw materials rather than irreversible investments like equipment. These results suggest that, contrary to what some firms profess, macroeconomic and political risk is not inhibiting the investment behavior of microenterprises. However, insurance may still be of value to help firms cope with shocks when they do occur, but the paper is unable to examine this dimension, because the insurance product did not pay out over the course of the pilot.

Keywords: Education for Development (superceded), Education For All, Cottage Industry, Microenterprises, Private Sector Development Law, Private Sector Economics, Marketing, Educational Populations

Suggested Citation

Groh, Matthew and McKenzie, David John, Macroinsurance for Microenterprises: A Randomized Experiment in Post-Revolution Egypt (September 1, 2014). World Bank Policy Research Working Paper No. 7048, Available at SSRN: https://ssrn.com/abstract=2502229

Matthew Groh (Contact Author)

World Bank ( email )

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Washington, DC 20433
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

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