Can Microfinance Unlock a Poverty Trap for Some Entrepreneurs? / Abhijit Banerjee, Emily Breza, Esther Duflo, Cynthia Kinnan.

Format:

Book

Author/Creator:

Banerjee, Abhijit.

Contributor:

National Bureau of Economic Research.

Breza, Emily.

Duflo, Esther.

Kinnan, Cynthia.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26346.

NBER working paper series no. w26346

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

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.

Notes:

Print version record

October 2019.