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

38 Pages Posted: 17 Nov 2014

See all articles by David J. McKenzie

David J. McKenzie

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

Matthew Groh

World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: October 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. We conduct a randomized experiment 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 they invest this loan. We attribute this lack of effect to microenterprises largely investing in inventories and raw materials rather than irreversible investments like equipment. These results suggest that, contrary to what they profess, macroeconomic and political risk is not inhibiting the investment behavior of microenterprises. However, insurance may still be of value to them to help cope with shocks when they do occur, but we are unable to examine this dimension as our insurance product did not pay out over the course of the pilot.

Keywords: Egypt, insurance, microenterprises, political instability, risk, uncertainty

JEL Classification: C93, D22, G22, O12, O16

Suggested Citation

McKenzie, David John and Groh, Matthew, Macroinsurance for Microenterprises: A Randomized Experiment in Post-Revolution Egypt (October 2014). CEPR Discussion Paper No. DP10226, Available at SSRN: https://ssrn.com/abstract=2526354

David John McKenzie (Contact Author)

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

Matthew Groh

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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