Experimental Evidence on Returns to Capital and Access to Finance in Mexico

A strong theoretical argument for focusing on access to finance is that financial market imperfections can result in large inefficiencies, as firms with productive investment opportunities underinvest. Lack of access to finance is a frequent complaint of microenterprises, which account for a large s...

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Bibliographic Details
Main Authors:	McKenzie, David, Woodruff, Christopher
Format:	Journal Article
Published:	World Bank 2012
Subjects:	access to loans developing countries financial institutions financial market investment opportunities market interest rates microenterprises productive investment return returns
Online Access:	http://hdl.handle.net/10986/4488

id	okr-10986-4488
recordtype	oai_dc
spelling	okr-10986-44882021-04-23T14:02:18Z Experimental Evidence on Returns to Capital and Access to Finance in Mexico McKenzie, David Woodruff, Christopher access to loans developing countries financial institutions financial market investment opportunities market interest rates microenterprises productive investment return returns A strong theoretical argument for focusing on access to finance is that financial market imperfections can result in large inefficiencies, as firms with productive investment opportunities underinvest. Lack of access to finance is a frequent complaint of microenterprises, which account for a large share of employment in developing countries. However, assessing the extent to which a lack of capital affects their business profits is complicated by the fact that business investment is likely to be correlated with a host of unmeasured characteristics of the owner and firm, such as entrepreneurial ability and demand shocks. In a randomized experiment that gave cash and in-kind grants to small retail firms, providing an exogenous shock to capital, the shock generated large increases in profits, with the effects concentrated among firms that were more financially constrained. The estimated return to capital was at least 20–33 percent a month—three to five times higher than market interest rates. 2012-03-30T07:12:37Z 2012-03-30T07:12:37Z 2008-12-01 Journal Article World Bank Economic Review 1564-698X http://hdl.handle.net/10986/4488 CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank World Bank Journal Article Latin America & Caribbean Mexico
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
topic	access to loans developing countries financial institutions financial market investment opportunities market interest rates microenterprises productive investment return returns
spellingShingle	access to loans developing countries financial institutions financial market investment opportunities market interest rates microenterprises productive investment return returns McKenzie, David Woodruff, Christopher Experimental Evidence on Returns to Capital and Access to Finance in Mexico
geographic_facet	Latin America & Caribbean Mexico
description	A strong theoretical argument for focusing on access to finance is that financial market imperfections can result in large inefficiencies, as firms with productive investment opportunities underinvest. Lack of access to finance is a frequent complaint of microenterprises, which account for a large share of employment in developing countries. However, assessing the extent to which a lack of capital affects their business profits is complicated by the fact that business investment is likely to be correlated with a host of unmeasured characteristics of the owner and firm, such as entrepreneurial ability and demand shocks. In a randomized experiment that gave cash and in-kind grants to small retail firms, providing an exogenous shock to capital, the shock generated large increases in profits, with the effects concentrated among firms that were more financially constrained. The estimated return to capital was at least 20–33 percent a month—three to five times higher than market interest rates.
format	Journal Article
author	McKenzie, David Woodruff, Christopher
author_facet	McKenzie, David Woodruff, Christopher
author_sort	McKenzie, David
title	Experimental Evidence on Returns to Capital and Access to Finance in Mexico
title_short	Experimental Evidence on Returns to Capital and Access to Finance in Mexico
title_full	Experimental Evidence on Returns to Capital and Access to Finance in Mexico
title_fullStr	Experimental Evidence on Returns to Capital and Access to Finance in Mexico
title_full_unstemmed	Experimental Evidence on Returns to Capital and Access to Finance in Mexico
title_sort	experimental evidence on returns to capital and access to finance in mexico
publisher	World Bank
publishDate	2012
url	http://hdl.handle.net/10986/4488
_version_	1764391580632875008

Experimental Evidence on Returns to Capital and Access to Finance in Mexico

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