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Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
Direct and indirect effects of cash transfer on entrepreneurship
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Direct and indirect effects of cash transfer on entrepreneurship

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This presentation is about the importance of financial constraints in explaining entrepreneurship among poor households by exploring the liquidity shock promoted by a large-scale conditional cash …

This presentation is about the importance of financial constraints in explaining entrepreneurship among poor households by exploring the liquidity shock promoted by a large-scale conditional cash transfer (CCT) program in Brazil.
Presentation by Rafael P. Ribas, University of Illinois
GDN 14th Annual Conference
Manila, Philippines
June 19-21, 2013

Published in: News & Politics, Business
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  • 1. Introduction Method Results ConclusionDirect and Indirect Effects ofCash Transfer on EntrepreneurshipRafael P. RibasUniversity of IllinoisGDN 14th Annual Global Development Conference,June 20, 2013
  • 2. Introduction Method Results ConclusionIntroductionCapital is essential for starting a business.Limited access to credit may lessen entrepreneurialactivity in developing countries.The role of a liquidity shock in supportingentrepreneurship among poor households.Large-scale Conditional Cash Transfer (CCT) programin Brazil, Bolsa Fam´ılia.Conditional on school attendance and health care.Small but steady income to poor households.No rule over business investment or labor supply.
  • 3. Introduction Method Results ConclusionIntroductionCapital is essential for starting a business.Limited access to credit may lessen entrepreneurialactivity in developing countries.The role of a liquidity shock in supportingentrepreneurship among poor households.Large-scale Conditional Cash Transfer (CCT) programin Brazil, Bolsa Fam´ılia.Conditional on school attendance and health care.Small but steady income to poor households.No rule over business investment or labor supply.
  • 4. Introduction Method Results ConclusionIntroductionCapital is essential for starting a business.Limited access to credit may lessen entrepreneurialactivity in developing countries.The role of a liquidity shock in supportingentrepreneurship among poor households.Large-scale Conditional Cash Transfer (CCT) programin Brazil, Bolsa Fam´ılia.Conditional on school attendance and health care.Small but steady income to poor households.No rule over business investment or labor supply.
  • 5. Introduction Method Results ConclusionIntroductionCapital is essential for starting a business.Limited access to credit may lessen entrepreneurialactivity in developing countries.The role of a liquidity shock in supportingentrepreneurship among poor households.Large-scale Conditional Cash Transfer (CCT) programin Brazil, Bolsa Fam´ılia.Conditional on school attendance and health care.Small but steady income to poor households.No rule over business investment or labor supply.
  • 6. Introduction Method Results ConclusionIntroductionCapital is essential for starting a business.Limited access to credit may lessen entrepreneurialactivity in developing countries.The role of a liquidity shock in supportingentrepreneurship among poor households.Large-scale Conditional Cash Transfer (CCT) programin Brazil, Bolsa Fam´ılia.Conditional on school attendance and health care.Small but steady income to poor households.No rule over business investment or labor supply.
  • 7. Introduction Method Results ConclusionIntroductionCapital is essential for starting a business.Limited access to credit may lessen entrepreneurialactivity in developing countries.The role of a liquidity shock in supportingentrepreneurship among poor households.Large-scale Conditional Cash Transfer (CCT) programin Brazil, Bolsa Fam´ılia.Conditional on school attendance and health care.Small but steady income to poor households.No rule over business investment or labor supply.
  • 8. Introduction Method Results ConclusionIntroductionThe impacts often interpreted as individual responses ofparticipants (direct effects),I investigate not only the individual effect on participants,but also the social effects.There are two possible indirect effects:1 Shifting the aggregate demand andincreasing investment opportunities.2 Stimulating informal credit and private transfers.
  • 9. Introduction Method Results ConclusionIntroductionThe impacts often interpreted as individual responses ofparticipants (direct effects), ignoring local spill-overs(indirect effects).I investigate not only the individual effect on participants,but also the social effects.There are two possible indirect effects:1 Shifting the aggregate demand andincreasing investment opportunities.2 Stimulating informal credit and private transfers.
  • 10. Introduction Method Results ConclusionIntroductionThe impacts often interpreted as individual responses ofparticipants (direct effects), ignoring local spill-overs(indirect effects).I investigate not only the individual effect on participants,but also the social effects.There are two possible indirect effects:1 Shifting the aggregate demand andincreasing investment opportunities.2 Stimulating informal credit and private transfers.
  • 11. Introduction Method Results ConclusionIntroductionThe impacts often interpreted as individual responses ofparticipants (direct effects), ignoring local spill-overs(indirect effects).I investigate not only the individual effect on participants,but also the social effects.There are two possible indirect effects:1 Shifting the aggregate demand andincreasing investment opportunities.2 Stimulating informal credit and private transfers.
  • 12. Introduction Method Results ConclusionIntroductionThe impacts often interpreted as individual responses ofparticipants (direct effects), ignoring local spill-overs(indirect effects).I investigate not only the individual effect on participants,but also the social effects.There are two possible indirect effects:1 Shifting the aggregate demand andincreasing investment opportunities.2 Stimulating informal credit and private transfers.
  • 13. Introduction Method Results ConclusionIntroductionThe impacts often interpreted as individual responses ofparticipants (direct effects), ignoring local spill-overs(indirect effects).I investigate not only the individual effect on participants,but also the social effects.There are two possible indirect effects:1 Shifting the aggregate demand andincreasing investment opportunities.2 Stimulating informal credit and private transfers.
  • 14. Introduction Method Results ConclusionIntroduction0.1.2.3.4.5.6shareofbeneficiaries0.05.1.15.2.25probabilityoftransfering1 2 3 4 5 6 7 8 9 10Income DecileCCT beneficiariesnon−beneficiariesshare of beneficiariesParticipants are more likely to make transfers to other households.With more cash flowing, the individual intervention becomes social.
  • 15. Introduction Method Results ConclusionIntroduction0.1.2.3.4.5.6shareofbeneficiaries0.05.1.15.2.25probabilityoftransfering1 2 3 4 5 6 7 8 9 10Income DecileCCT beneficiariesnon−beneficiariesshare of beneficiariesParticipants are more likely to make transfers to other households.With more cash flowing, the individual intervention becomes social.
  • 16. Introduction Method Results ConclusionDataNational Household Survey (PNAD) from 2001, 2004, 2006.It is a cross-sectional survey, but with apanel of neighborhoods (census tracts).Low-educated men between 25 and 45 years,living in urban areas.Entrepreneurs are those either self-employedor small business owners.Also required that they contribute to social security.Informal workers’ earnings cannot be tracked.
  • 17. Introduction Method Results ConclusionDataNational Household Survey (PNAD) from 2001, 2004, 2006.It is a cross-sectional survey, but with apanel of neighborhoods (census tracts).Low-educated men between 25 and 45 years,living in urban areas.Entrepreneurs are those either self-employedor small business owners.Also required that they contribute to social security.Informal workers’ earnings cannot be tracked.
  • 18. Introduction Method Results ConclusionDataNational Household Survey (PNAD) from 2001, 2004, 2006.It is a cross-sectional survey, but with apanel of neighborhoods (census tracts).Low-educated men between 25 and 45 years,living in urban areas.Entrepreneurs are those either self-employedor small business owners.Also required that they contribute to social security.Informal workers’ earnings cannot be tracked.
  • 19. Introduction Method Results ConclusionDataNational Household Survey (PNAD) from 2001, 2004, 2006.It is a cross-sectional survey, but with apanel of neighborhoods (census tracts).Low-educated men between 25 and 45 years,living in urban areas.Entrepreneurs are those either self-employedor small business owners.Also required that they contribute to social security.Informal workers’ earnings cannot be tracked.
  • 20. Introduction Method Results ConclusionDataNational Household Survey (PNAD) from 2001, 2004, 2006.It is a cross-sectional survey, but with apanel of neighborhoods (census tracts).Low-educated men between 25 and 45 years,living in urban areas.Entrepreneurs are those either self-employedor small business owners.Also required that they contribute to social security.Informal workers’ earnings cannot be tracked.
  • 21. Introduction Method Results ConclusionIdentification StrategyThe identification assumption is inspired by the program design.Each municipality (city or village) has a maximum number ofbenefits to be offered, given by the 2000-2001 poverty rate.R2 = 0.7680.2.4.6.81CCTcoverage0 .2 .4 .6 .8 1poverty headcount2004 coverage vs. 2000 povertyR2 = 0.9160.2.4.6.81CCTcoverage 0 .2 .4 .6 .8 1poverty headcount2006 coverage vs. 2000 poverty2000 Census and Official RecordR2 = 0.7420.2.4.6.81CCTcoverage0 .2 .4 .6 .8 1poverty headcount2004 coverage vs. 2001 povertyR2 = 0.8010.2.4.6.81CCTcoverage0 .2 .4 .6 .8 1poverty headcount2006 coverage vs. 2001 povertyR2 = 0.7670.2.4.6.81CCTcoverage0 .2 .4 .6 .8 1poverty headcount2006 coverage vs. 2004 povertyNational Household Survey
  • 22. Introduction Method Results ConclusionIdentification StrategyThe identification assumption is inspired by the program design.The growth of coverage mostly driven by the previous povertyrate, rather than the increasing demand from poor households.R2 = 0.7680.2.4.6.81CCTcoverage0 .2 .4 .6 .8 1poverty headcount2004 coverage vs. 2000 povertyR2 = 0.9160.2.4.6.81CCTcoverage 0 .2 .4 .6 .8 1poverty headcount2006 coverage vs. 2000 poverty2000 Census and Official RecordR2 = 0.7420.2.4.6.81CCTcoverage0 .2 .4 .6 .8 1poverty headcount2004 coverage vs. 2001 povertyR2 = 0.8010.2.4.6.81CCTcoverage0 .2 .4 .6 .8 1poverty headcount2006 coverage vs. 2001 povertyR2 = 0.7670.2.4.6.81CCTcoverage0 .2 .4 .6 .8 1poverty headcount2006 coverage vs. 2004 povertyNational Household Survey
  • 23. Introduction Method Results ConclusionIdentification StrategyThe decision of being an entrepreneur, yivt, is a function of theindividual benefit, divt, and the local coverage, dvt:yivt = β0 + β1divt + β2dvt + µv + µt + uivt, (1)The local coverage, dvt, is assumed to be independent of theindividual propensity to be an entrepreneur, uivt.Not ignoring the fact that some households are more likelyto go after the program than othersdivt is still endogenous due to self-selectioninto the program.I actually estimate the overall effect, τ = β1 + β2:yivt = β0 + τdvt + µv + µt + uivt (2)
  • 24. Introduction Method Results ConclusionIdentification StrategyThe decision of being an entrepreneur, yivt, is a function of theindividual benefit, divt, and the local coverage, dvt:yivt = β0 + β1divt + β2dvt + µv + µt + uivt, (1)The local coverage, dvt, is assumed to be independent of theindividual propensity to be an entrepreneur, uivt.Not ignoring the fact that some households are more likelyto go after the program than othersdivt is still endogenous due to self-selectioninto the program.I actually estimate the overall effect, τ = β1 + β2:yivt = β0 + τdvt + µv + µt + uivt (2)
  • 25. Introduction Method Results ConclusionIdentification StrategyThe decision of being an entrepreneur, yivt, is a function of theindividual benefit, divt, and the local coverage, dvt:yivt = β0 + β1divt + β2dvt + µv + µt + uivt, (1)The local coverage, dvt, is assumed to be independent of theindividual propensity to be an entrepreneur, uivt.Not ignoring the fact that some households are more likelyto go after the program than othersdivt is still endogenous due to self-selectioninto the program.I actually estimate the overall effect, τ = β1 + β2:yivt = β0 + τdvt + µv + µt + uivt (2)
  • 26. Introduction Method Results ConclusionIdentification StrategyThe decision of being an entrepreneur, yivt, is a function of theindividual benefit, divt, and the local coverage, dvt:yivt = β0 + β1divt + β2dvt + µv + µt + uivt, (1)The local coverage, dvt, is assumed to be independent of theindividual propensity to be an entrepreneur, uivt.Not ignoring the fact that some households are more likelyto go after the program than othersdivt is still endogenous due to self-selectioninto the program.I actually estimate the overall effect, τ = β1 + β2:yivt = β0 + τdvt + µv + µt + uivt (2)
  • 27. Introduction Method Results ConclusionSeparating Direct and Indirect EffectsIf the indirect effect, β2, is different for participantsand non-participants, then the overall effect, τ, must benonlinear.Then the sample of non-participants is usedto estimate the indirect effect.The direct effect is the biased estimate minus expected bias:˜β1 = ˆβ1 − ˆτ(d=0) − ˆβ2 .All coefficients are estimated using seemingly unrelatedregressions (SUR).
  • 28. Introduction Method Results ConclusionSeparating Direct and Indirect EffectsIf the indirect effect, β2, is different for participantsand non-participants, then the overall effect, τ, must benonlinear.Then the sample of non-participants is usedto estimate the indirect effect.The direct effect is the biased estimate minus expected bias:˜β1 = ˆβ1 − ˆτ(d=0) − ˆβ2 .All coefficients are estimated using seemingly unrelatedregressions (SUR).
  • 29. Introduction Method Results ConclusionSeparating Direct and Indirect EffectsIf the indirect effect, β2, is different for participantsand non-participants, then the overall effect, τ, must benonlinear.Then the sample of non-participants is usedto estimate the indirect effect.The direct effect is the biased estimate minus expected bias:˜β1 = ˆβ1 − ˆτ(d=0) − ˆβ2 .All coefficients are estimated using seemingly unrelatedregressions (SUR).
  • 30. Introduction Method Results ConclusionSeparating Direct and Indirect EffectsIf the indirect effect, β2, is different for participantsand non-participants, then the overall effect, τ, must benonlinear.Then the sample of non-participants is usedto estimate the indirect effect.The direct effect is the biased estimate minus expected bias:˜β1 = ˆβ1 − ˆτ(d=0) − ˆβ2 .All coefficients are estimated using seemingly unrelatedregressions (SUR).
  • 31. Introduction Method Results ConclusionOverall EffectOLS IV(1) (2) (3) (4) (5) (6)coverage, d −0.013∗0.042∗∗∗0.040∗∗∗0.053∗∗0.051∗∗(0.01) (0.01) (0.01) (0.02) (0.02)indiv. benefit, d 0.057∗∗(0.02)Control variablesMunicipality FE XCensus Tract FE X X X XYear dummies X X X X X XDemographic X X X X X XSocial outcomes X XWith municipality fixed effects, results become consistently positive.10 p.p. in program coverage increases the entrepreneurship ratein 0.4-0.5 p.p. (Baseline = 7 p.p.).
  • 32. Introduction Method Results ConclusionOverall EffectOLS IV(1) (2) (3) (4) (5) (6)coverage, d −0.013∗0.042∗∗∗0.040∗∗∗0.053∗∗0.051∗∗(0.01) (0.01) (0.01) (0.02) (0.02)indiv. benefit, d 0.057∗∗(0.02)Control variablesMunicipality FE XCensus Tract FE X X X XYear dummies X X X X X XDemographic X X X X X XSocial outcomes X XWith municipality fixed effects, results become consistently positive.10 p.p. in program coverage increases the entrepreneurship ratein 0.4-0.5 p.p. (Baseline = 7 p.p.).
  • 33. Introduction Method Results ConclusionDirect and Indirect EffectsAll indiv. benefit = 0 All samplesample OLS IV OLS IV(1) (2) (3) (4) (5)coverage, d 0.048∗0.063∗∗∗0.076∗∗∗0.063∗∗∗0.078∗∗∗(0.03) (0.02) (0.02) (0.01) (0.02)squared coverage, d2−0.004(0.044)indiv. benefit, d −0.026∗∗∗−0.027∗∗∗(0.00) (0.00)Control variablesCensus Tract FE X X X X XYear dummies X X X X XDemographic X X X X XEconomic sectors X X X X XTotal effect is linear effect, so indirect effect is assumed to be constant.Indirect effect is greater than the total effect, 0.6-0.7 p.p.Then the direct effect is negative.
  • 34. Introduction Method Results ConclusionDirect and Indirect EffectsAll indiv. benefit = 0 All samplesample OLS IV OLS IV(1) (2) (3) (4) (5)coverage, d 0.048∗0.063∗∗∗0.076∗∗∗0.063∗∗∗0.078∗∗∗(0.03) (0.02) (0.02) (0.01) (0.02)squared coverage, d2−0.004(0.044)indiv. benefit, d −0.026∗∗∗−0.027∗∗∗(0.00) (0.00)Control variablesCensus Tract FE X X X X XYear dummies X X X X XDemographic X X X X XEconomic sectors X X X X XTotal effect is linear effect, so indirect effect is assumed to be constant.Indirect effect is greater than the total effect, 0.6-0.7 p.p.Then the direct effect is negative.
  • 35. Introduction Method Results ConclusionExplaining Direct EffectsAdditional analyses show that:Negative effect on entrepreneurship followed by a reductionin the formal sector participation.While labor supply in the informal sector increases.
  • 36. Introduction Method Results ConclusionExplaining Direct EffectsAdditional analyses show that:Negative effect on entrepreneurship followed by a reductionin the formal sector participation.While labor supply in the informal sector increases.
  • 37. Introduction Method Results ConclusionExplaining Direct EffectsAdditional analyses show that:Negative effect on entrepreneurship followed by a reductionin the formal sector participation.While labor supply in the informal sector increases.
  • 38. Introduction Method Results ConclusionExplaining Direct EffectsAdditional analyses show that:Negative effect on entrepreneurship followed by a reductionin the formal sector participation.While labor supply in the informal sector increases.Participants don’t want to lose the benefit, so they look forways of not having their earnings tracked.
  • 39. Introduction Method Results ConclusionExplaining Indirect EffectsAdditional analyses show that:No indirect effect on job creation.No indirect effect on other entrepreneurs.Positive effects on the probability of non-participantsreceiving private transfers.
  • 40. Introduction Method Results ConclusionExplaining Indirect EffectsAdditional analyses show that:No indirect effect on job creation.No indirect effect on other entrepreneurs.Positive effects on the probability of non-participantsreceiving private transfers.
  • 41. Introduction Method Results ConclusionExplaining Indirect EffectsAdditional analyses show that:No indirect effect on job creation.No indirect effect on other entrepreneurs.The hypothesis of increasing investmentopportunities is not supported.Positive effects on the probability of non-participantsreceiving private transfers.
  • 42. Introduction Method Results ConclusionExplaining Indirect EffectsAdditional analyses show that:No indirect effect on job creation.No indirect effect on other entrepreneurs.The hypothesis of increasing investmentopportunities is not supported.Positive effects on the probability of non-participantsreceiving private transfers.It supports the hypothesis of promoting informal credit.
  • 43. Introduction Method Results ConclusionConclusionsNegative direct effect on labor supply, reducing the probabilityof beneficiaries to start their own business.The amount of cash transfered to poor communities stimulatesprivate transfers among poor households.The way the liquidity shock spills over the whole community,increasing the overall entrepreneurship rate.CCTs can also play a role in the promotion of informal creditand small business creation.However, eligibility rules might discourage program participantsto look for opportunities in the formal sector.
  • 44. Introduction Method Results ConclusionConclusionsNegative direct effect on labor supply, reducing the probabilityof beneficiaries to start their own business.The amount of cash transfered to poor communities stimulatesprivate transfers among poor households.The way the liquidity shock spills over the whole community,increasing the overall entrepreneurship rate.CCTs can also play a role in the promotion of informal creditand small business creation.However, eligibility rules might discourage program participantsto look for opportunities in the formal sector.
  • 45. Introduction Method Results ConclusionConclusionsNegative direct effect on labor supply, reducing the probabilityof beneficiaries to start their own business.The amount of cash transfered to poor communities stimulatesprivate transfers among poor households.The way the liquidity shock spills over the whole community,increasing the overall entrepreneurship rate.CCTs can also play a role in the promotion of informal creditand small business creation.However, eligibility rules might discourage program participantsto look for opportunities in the formal sector.
  • 46. Introduction Method Results ConclusionConclusionsNegative direct effect on labor supply, reducing the probabilityof beneficiaries to start their own business.The amount of cash transfered to poor communities stimulatesprivate transfers among poor households.The way the liquidity shock spills over the whole community,increasing the overall entrepreneurship rate.CCTs can also play a role in the promotion of informal creditand small business creation.However, eligibility rules might discourage program participantsto look for opportunities in the formal sector.
  • 47. Introduction Method Results ConclusionThank you for your attentionRafael P. Ribasrpribas.rs@gmail.comhttp://publish.illinois.edu/ribas1

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