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Direct and Indirect Effects of Cash Transfers on Entrepreneurship

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  • Ribas, Rafael P.

Abstract

This paper exploits a liquidity shock from a large-scale welfare program in Brazil to investigate the importance of credit constraints and informal financial assistance in explaining entrepreneurship. Previous research focuses exclusively on how liquidity shocks change recipients’ behavior through direct effects on reducing financial constraints. However, the shock may also produce spillovers from recipients to others through private transfers and thereby indirectly affect decisions to be an entrepreneur. This paper presents a method for decomposing the liquidity shock into direct effects associated with relieving financial constraints, and indirect effects associated with spillovers to other individuals. Results suggest that the program, which assists 20 percent of Brazilian households, has increased the number of small entrepreneurs by 10 percent. However, this increase is almost entirely driven by the indirect effect, which is related to an increase in private transfers among poor households. Thus the creation of small businesses seems to be more responsive to the opportunity cost of mutual assistance between households than to financial constraints.

Suggested Citation

  • Ribas, Rafael P., 2014. "Direct and Indirect Effects of Cash Transfers on Entrepreneurship," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 167368, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea14:167368
    DOI: 10.22004/ag.econ.167368
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    Cited by:

    1. Mário Rubem Do Coutto Bastos & Mário Rubem Do Coutto Bastos, 2016. "Yardstick Competition E A Disciplina Eleitoral No Programa Bolsa Família," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 070, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    2. Tobias Pfutze & Carlos Rodríguez-Castelán, 2019. "Can a Small Social Pension Promote Labor Force Participation? Evidence from the Colombia Mayor Program," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2019), pages 111-154, October.

    More about this item

    Keywords

    Consumer/Household Economics; Financial Economics; Labor and Human Capital; Public Economics; Research Methods/ Statistical Methods;
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