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Africa

A cheap intervention that helped partially formalize firms and increased profits – just don’t ask about taxes

David McKenzie's picture
Governments have at least four reasons to try and bring firms into the formal system:
  1. To broaden and increase the tax base
  2. To enable firms to access the formal economy and help spur firm growth through the potential benefits of being formal (such as access to financial services and government contracts)
  3. To increase the sense of rule of law by having the default be that everyone is obeying the law
  4. To have firms provide information about themselves to the state, which can help the government better understand the structure of the economy and to better target business programs.

The most common way of trying to achieve these aims has been through regulatory reforms that make it easier for firms to formalize. This has taken the form of “one-stop-shops” which have been implemented in at least 115 countries and which enable firms to register both as a business and as a tax entity all at once. However, a number of randomized experiments that have followed such reforms have seen very few informal firms formalize. This raises the question of whether regulatory simplification alone is not enough, and whether trying to achieve all of the above four goals with one instrument causes none of them to be attained.

Separating business and tax registration, and an experiment in Malawi
In a new working paper (replication data) (joint with Francisco Campos), we conducted an experiment with informal firms in Malawi that aimed to test whether governments can bring firms into at least part of the formal system and thereby achieve at least some of the above goals, and whether firms need additional help to realize the benefits of becoming formal.

Cash grants and poverty reduction

Berk Ozler's picture

Blattman, Fiala, and Martinez (2018), which examines the nine-year effects of a group-based cash grant program for unemployed youth to start individual enterprises in skilled trades in Northern Uganda, was released today. Those of you well versed in the topic will remember Blattman et al. (2014), which summarized the impacts from the four-year follow-up. That paper found large earnings gains and capital stock increases among those young, unemployed individuals, who formed groups, proposed to form enterprises in skilled trades, and were selected to receive the approximately $400/per person lump-sum grants (in 2008 USD using market exchange rates) on offer from the Northern Uganda Social Action Funds (NUSAF). I figured that a summary of the paper that goes into some minutiae might be helpful for those of you who will not read it carefully – despite your best intentions. I had an early look at the paper because the authors kindly sent it to me for comments.

Growing or fading? The long-run impacts of educational interventions

David Evans's picture
Also available in: Français

Many education investments focus on the first years of primary education or – even before that – early child education. The logic behind this is intuitive: Without a solid foundation, it’s hard for children and youth to gain later skills that use those foundations. If you can’t decipher letters, then it’s going to be tough to learn from a science textbook. Or even a math textbook. But it’s important to remember that for most “investors” (whether governments or parents or the children themselves), the most basic skills aren’t the ultimate goal. The objective is better life outcomes. Most of the justification for these early interventions are that they will translate into better lives once these children grow up.

Cash Transfers Increase Trust in Local Government

David Evans's picture

Cash transfers seem to be everywhere. A recent statistic suggests that 130 low- and middle-income countries have an unconditional cash transfer program, and 63 have a conditional cash transfer program. We know that cash transfers do good things: the children of beneficiaries have better access to health and education services (and in some cases, better outcomes), and there is some evidence of positive longer run impacts. (There is also some evidence that long-term impacts are quite modest, and even mixed evidence within one study, so the jury’s still out on that one.)

In our conversations with government about cash transfers, one of the concerns that arose was how they would affect the social fabric. Might cash transfers negatively affect how citizens interact with each other, or with their government? In our new paper, “Cash Transfers Increase Trust in Local Government” (can you guess the finding from the title?) – which we authored together with Brian Holtemeyer – we provide evidence from Tanzania that cash transfers increase the trust that citizens have in government. They may even help governments work a little bit better.

Can predicting successful entrepreneurship go beyond “choose smart guys in their 30s”? Comparing machine learning and expert judge predictions

David McKenzie's picture

Business plan competitions have increasingly become one policy option used to identify and support high-growth potential businesses. For example, the World Bank has helped design and support these programs in a number of sub-Saharan African countries, including Côte d’Ivoire, Gabon, Guinea-Bissau, Kenya, Nigeria, Rwanda, Senegal, Somalia, South Sudan, Tanzania, and Uganda. These competitions often attract large numbers of applications, raising the question of how do you identify which business owners are most likely to succeed?

In a recent working paper, Dario Sansone and I compare three different approaches to answering this question, in the context of Nigeria’s YouWiN! program. Nigerians aged 18 to 40 could apply with either a new or existing business. The first year of this program attracted almost 24,000 applications, and the third year over 100,000 applications. After a preliminary screening and scoring, the top 6,000 were invited to a 4-day business plan training workshop, and then could submit business plans, with 1,200 winners each chosen to receive an average of US$50,000 each. We use data from the first year of this program, together with follow-up surveys over three years, to determine how well different approaches would do in predicting which entrants will have the most successful businesses.

What happens when business training and capital programs get caught in the web of intrahousehold dynamics?

Markus Goldstein's picture
Two weeks ago, I blogged about a new paper by Arielle Bernhardt and coauthors which looked at the idea that when women receive a cash infusion from a program, they may give it to their husbands to invest in their business.
 

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