Journal Issue: World Bank Economic Review, Volume 25, Issue 3

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Getting Credit to High Return Microentrepreneurs : The Results of an Information Intervention
(World Bank, 2011-10-18) de Mel, Suresh ; McKenzie, David ; Woodruff, Christopher
Small-scale entrepreneurs typically cite access to finance as the most important constraint to growth. Recent randomized experiments have shown the return to capital to be very high for the average microenterprise in Sri Lanka. An intervention was designed to improve access to credit among these high-return microenterprises without subsidizing interest rates or requiring group lending. The intervention consisted of information sessions providing details of the microfinance loan product offered by a regional development bank and a reduction from two to one in the number of personal guarantors required for these loans. Ten percent of the microenterprises invited to the information meetings received a new loan, doubling the proportion of firms receiving loans over this period. However, the loans do not appear to be going to particularly high-return firms but rather to firms with more household assets. Many more firms would like loans but are constrained by an inability to find personal guarantors and by other bureaucratic procedures. The results suggest that information alone is unlikely to be enough for most firms and point to the need for credit bureaus that cover microfinance loans and for continuing innovation in loan products that can reach the urban microenterprise sector.
What Constrains Africa’s Exports?
(World Bank, 2011-10-18) Freund, Caroline ; Rocha, Nadia
Africa's share of global exports has dropped by 50 percent over the last three decades. To stem this decline, aid for trade to the region has increased rapidly in recent years. Assistance can target improvements in three important components of trade facilitation: transit times, documentation, and ports and customs. Of these, transit delays have the most economically and statistically significant effect on exports. Specifically, a one day reduction in inland travel times leads to a 7 percent increase in exports, after controlling for the standard determinants of trade and potential endogeneity. Put another way, a one day reduction in inland travel times translates into a 2 percentage point decrease in all importing-country tariffs. By contrast, longer delays in the other areas have a far smaller impact on trade. Large transit delays are relatively more harmful because they are associated with high (within-country) variation, making delivery targets difficult to meet. Finally, the results imply that transit times are primarily about institutional features—such as border delays, road quality, fleet class and competition and security—and not geography.
Do Labor Statistics Depend on How and to Whom the Questions Are Asked? Results from a Survey Experiment in Tanzania
(World Bank, 2011-10-18) Bardasi, Elena ; Beegle, Kathleen ; Dillon, Andrew ; Serneels, Pieter
Labor market statistics are critical for assessing and understanding economic development. However, widespread variation exists in how labor statistics are collected in household surveys. This paper analyzes the effects of alternative survey design on employment statistics by implementing a randomized survey experiment in Tanzania. Two features of the survey design are assessed – the level of detail of the employment questions and the type of respondent. It turns out that both features have relevant and statistically significant effects on employment statistics. Using a short labor module without screening questions induces many individuals to adopt a broad definition of employment, incorrectly including domestic duties. But after reclassifying those in domestic work as ‘not working’ in order to obtain the correct ILO classification, the short module turns out to generate lower female employment rates, higher working hours for both men and women who are employed, and lower rates of wage employment than the detailed module. Response by proxy rather than self-report has no effect on female labor statistics but yields substantially lower male employment rates, mostly due to underreporting of agricultural activity. The large impacts of proxy responses on male employment rates are attenuated when proxy informants are spouses and individuals with some schooling.
Does a Picture Paint a Thousand Words? Evidence from a Microcredit Marketing Experiment
(World Bank, 2011-10-18) Giné, Xavier ; Mansuri, Ghazala ; Picón, Mario
Female entrepreneurship is low in many developing economies partly due to constraints on women's time and mobility, often reinforced by social norms. We analyze a marketing experiment designed to encourage female uptake of a new microcredit product. A brochure with two different covers was randomly distributed among male and female borrowing groups. One cover featured 5 businesses run by men while the other had identical businesses run by women. We find that both men and women respond to psychological cues. Men who are not themselves business owners, have lower measured ability and whose wives are less educated respond more negatively to the female brochure, as do women business owners with low autonomy within the household. Women with relatively high levels of autonomy shown the male brochure have a similar negative response, while there is no effect on female business owners with autonomy shown the female brochure. Overall, these results suggest that women's response to psychological cues, such as positive role models, may be mediated by their autonomy and that more disadvantaged women may require more intensive interventions.
Entrepreneurship and the Extensive Margin in Export Growth : A Microeconomic Accounting of Costa Rica’s Export Growth during 1997-2007
(World Bank, 2011-10-18) Lederman, Daniel ; Rodríguez-Clare, Andrés ; Yi Xu, Daniel
Successful exporting countries are often seen as successful economies. This paper studies the role of new exporting entrepreneurs – defined as firms that became exporters – in determining export growth in a fast growing and export oriented middle-income country i.e., Costa Rica during 1997-2007. It provides a detailed description of the contribution of export entrepreneurs in the short and long run, and comparing the observed patterns with an emerging literature on the role of the “extensive” margin in international trade. On a year-by-year basis, the rate of firm turnover into and out of exporting is high, but exit rates decline rapidly with age (i.e., the number of years the firm has been exporting). On average, about 30 percent of firms in each year tend to exit export activities, and a similar percentage of firms enter. The exiting and entering firms tend to be significantly smaller than incumbent firms in terms of export value (e.g., entrants export about 30 percent less on average than incumbent firms). These findings are consistent with existing evidence for other middle income Latin American countries. However, in the long run new product-firm combinations (i.e., product-firm combinations not present in 1997) account for almost 60 percent of the value of exports in 2007. Surviving new exporters actively adopted new products (for the firm, but not necessarily new for the country) and abandoned weaker existing products they start with, and their export growth rates were very high during a period (1999-2005) when those of incumbent exporting firms were actually negative.
Does the Internet Reduce Corruption? Evidence from U.S. States and across Countries
(World Bank, 2011-10-18) Barnebeck Andersen, Thomas ; Bentzen, Jeanet ; Dalgaard, Carl-Johan ; Selaya, Pablo
We test the hypothesis that the Internet is a useful technology for controlling corruption. In order to do so, we develop a novel identification strategy for Internet diffusion. Power disruptions damage digital equipment, which increases the user cost of IT capital, and thus lowers the speed of Internet diffusion. A natural phenomenon causing power disruptions is lightning activity, which makes lightning a viable instrument for Internet diffusion. Using ground-based lightning detection censors as well as global satellite data, we construct lightning density data for the contiguous U.S. states and a large cross section of countries. Empirically, lightning density is a strong instrument for Internet diffusion and our IV estimates suggest that the emergence of the Internet has served to reduce the extent of corruption across U.S. states and across the world.
The Impact of the Business Environment on Young Firm Financing
(World Bank, 2011-10-18) Chavis, Larry W. ; Klapper, Leora F. ; Love, Inessa
A unique dataset of over 70,000 firms, most of which are small, in over 100 countries, is utilized to systematically study the use of different financing sources for new and young firms. Consistent age-related patterns emerge. Across all countries younger firms rely less on bank financing and more on informal financing. There is a clear substitution effect: as firms mature, more firms switch out of informal finance toward bank finance, while the total proportion of firms using external finance remains relatively unchanged. Importantly, these relationships hold for firms of different sizes, firms in different sectors, and firms located in countries with different income levels and on different continents. Thus, these patterns of young firm financing show clear universal tendencies. Given that even small firms increasingly use formal bank financing over time, these results suggest that information asymmetry plays an important role in decreasing a young firm's ability to obtain bank finance.
Entrepreneurship and Development : The Role of Information Asymmetries
(World Bank, 2011-10-18) Klapper, Leora F. ; Love, Inessa
This article reviews the literature on the relationship between entrepreneurship and economic development and introduces four symposium articles. A common thread is that information asymmetries are important determinants of access to finance in young entrepreneurial firms. Policy recommendations are proposed that would increase the positive role of entrepreneurship in economic development.