Can Microfinance Unlock a Poverty Trap for Some Entrepreneurs?

Abhijit Banerjee, Emily Breza, Esther Duflo and Cynthia Kinnan

No 832, Discussion Papers Series, Department of Economics, Tufts University from Department of Economics, Tufts University

Abstract: 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.

Keywords: Microfinance; Entrepreneurship; Poverty Trap (search for similar items in EconPapers)
JEL-codes: D03 D14 D21 G21 O16 Z13 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-dev, nep-fdg and nep-mfd
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Citations: View citations in EconPapers (44)

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Working Paper: Can Microfinance Unlock a Poverty Trap for Some Entrepreneurs? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:tuf:tuftec:0832

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