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Macroinsurance for microenterprises: A randomized experiment in post-revolution Egypt

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  • Groh, Matthew
  • McKenzie, David

Abstract

Firms in many developing countries cite macroeconomic instability and political uncertainty as major constraints to their growth. We conduct a randomized experiment in post-revolution Egypt to measure the impact of insuring microenterprises against this uncertainty. Demand for macroeconomic shock insurance was high, with a take-up rate of 36.7%. However, purchasing insurance does not change the likelihood a business takes a new loan, the size of the loan, or how they invest this loan. We attribute this lack of effect to microenterprises largely investing in inventories and raw materials rather than irreversible investments like equipment, suggesting that macroeconomic and political risk is not inhibiting their investment behavior. The challenges of introducing an innovative insurance product in an environment where microentrepreneurs had little previous insurance exposure are particularly evident in a second year, where take-up was extremely low following political events that came close to, but did not, trigger insurance pay-outs.

Suggested Citation

  • Groh, Matthew & McKenzie, David, 2016. "Macroinsurance for microenterprises: A randomized experiment in post-revolution Egypt," Journal of Development Economics, Elsevier, vol. 118(C), pages 13-25.
  • Handle: RePEc:eee:deveco:v:118:y:2016:i:c:p:13-25
    DOI: 10.1016/j.jdeveco.2015.08.003
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    Cited by:

    1. Mckenzie,David J. & Paffhausen,Anna Luisa & Mckenzie,David J. & Paffhausen,Anna Luisa, 2017. "Small firm death in developing countries," Policy Research Working Paper Series 8236, The World Bank.
    2. Karlan, Dean & Osman, Adam & Zinman, Jonathan, 2016. "Follow the money not the cash: Comparing methods for identifying consumption and investment responses to a liquidity shock," Journal of Development Economics, Elsevier, vol. 121(C), pages 11-23.
    3. repec:arp:tjssrr:2018:p:258-263 is not listed on IDEAS

    More about this item

    Keywords

    Microenterprises; Uncertainty; Risk; Insurance; Political instability; Egypt;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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