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Does forced solidarity hamper investment in small and micro enterprises?

Michael Grimm, Renate Hartwig and Jann Lay

Journal of Comparative Economics, 2017, vol. 45, issue 4, 827-846

Abstract: Summary: Previous research has shown that small firms in poor countries achieve high marginal returns to capital but show low reinvestment rates. We investigate whether transfers motivated by risk sharing and forced redistribution can explain this pattern and may therefore hamper private sector development. The idea is that the more redistribution distorts the fairness of insurance, the more potentially successful entrepreneurs may be hindered to undertake profitable investments. The empirical results based on a sample of small firms operating in Burkina Faso support the main propositions of this paper.

Keywords: Extended family network; Investment; Private transfer; Solidarity tax; Africa; Burkina Faso (search for similar items in EconPapers)
JEL-codes: D13 D92 O12 O43 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Does Forced Solidarity Hamper Investment in Small and Micro Enterprises? (2013) Downloads
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Handle: RePEc:eee:jcecon:v:45:y:2017:i:4:p:827-846