Direct and Indirect Effects of Cash Transfers on Entrepreneurship

Rafael Ribas

No 167368, 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota from Agricultural and Applied Economics Association

Abstract: This paper exploits a liquidity shock from a large-scale welfare program in Brazil to investigate the importance of credit constraints and informal financial assistance in explaining entrepreneurship. Previous research focuses exclusively on how liquidity shocks change recipients’ behavior through direct effects on reducing financial constraints. However, the shock may also produce spillovers from recipients to others through private transfers and thereby indirectly affect decisions to be an entrepreneur. This paper presents a method for decomposing the liquidity shock into direct effects associated with relieving financial constraints, and indirect effects associated with spillovers to other individuals. Results suggest that the program, which assists 20 percent of Brazilian households, has increased the number of small entrepreneurs by 10 percent. However, this increase is almost entirely driven by the indirect effect, which is related to an increase in private transfers among poor households. Thus the creation of small businesses seems to be more responsive to the opportunity cost of mutual assistance between households than to financial constraints.

Keywords: Consumer/Household Economics; Financial Economics; Labor and Human Capital; Public Economics; Research Methods/ Statistical Methods (search for similar items in EconPapers)
Pages: 63
Date: 2014
New Economics Papers: this item is included in nep-dev and nep-ent
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea14:167368

DOI: 10.22004/ag.econ.167368

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