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Does forced solidarity hamper investment in small and micro enterprises?

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  • Grimm, Michael
  • Hartwig, Renate
  • Lay, Jann

Abstract

Summary: Previous research has shown that small firms in poor countries achieve high marginal returns to capital but show low reinvestment rates. We investigate whether transfers motivated by risk sharing and forced redistribution can explain this pattern and may therefore hamper private sector development. The idea is that the more redistribution distorts the fairness of insurance, the more potentially successful entrepreneurs may be hindered to undertake profitable investments. The empirical results based on a sample of small firms operating in Burkina Faso support the main propositions of this paper.

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  • Grimm, Michael & Hartwig, Renate & Lay, Jann, 2017. "Does forced solidarity hamper investment in small and micro enterprises?," Journal of Comparative Economics, Elsevier, vol. 45(4), pages 827-846.
  • Handle: RePEc:eee:jcecon:v:45:y:2017:i:4:p:827-846
    DOI: 10.1016/j.jce.2016.07.002
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    Cited by:

    1. Florian Klohn & Christoph Strupat, 2013. "Crowding out of Solidarity? – Public Health Insurance versus Informal Transfer Networks in Ghana," Ruhr Economic Papers 0432, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. Marie Boltz & Karine Marazyan & Paola Villar, 2016. "Income Hiding and Informal Redistribution: A Lab in the Field Experiment in Senegal," PSE Working Papers halshs-01157710, HAL.
    3. Margherita Calderone, 2017. "Are there different spillover effects from cash transfers to men and women? Impacts on investments in education in post-war Uganda," WIDER Working Paper Series 093, World Institute for Development Economic Research (UNU-WIDER).
    4. Baland, Jean-Marie & Bonjean, Isabelle & Guirkinger, Catherine & Ziparo, Roberta, 2016. "The economic consequences of mutual help in extended families," Journal of Development Economics, Elsevier, vol. 123(C), pages 38-56.
    5. Chi Huu Nguyen & Christophe J. Nordman, 2018. "Household Entrepreneurship and Social Networks: Panel Data Evidence from Vietnam," Journal of Development Studies, Taylor & Francis Journals, vol. 54(4), pages 594-618, April.
    6. Fiala, Nathan., 2015. "Access to finance and enterprise growth : evidence from an experiment in Uganda," ILO Working Papers 994874063402676, International Labour Organization.
    7. repec:dau:papers:123456789/14463 is not listed on IDEAS
    8. Marie Boltz & Karine Marazyan & Paola Villar, 2016. "Income Hiding and Informal Redistribution: A Lab in the Field Experiment in Senegal," Working Papers halshs-01157710, HAL.
    9. Alger, Ingela & Juarez, Laura & Juarez-Torres, Miriam & Miquel-Florensa, Josepa, 2016. "Does informal risk sharing induce lower efforts? Evidence from lab-in-the-field experiments in rural Mexico," TSE Working Papers 16-623, Toulouse School of Economics (TSE), revised Oct 2016.
    10. Fiala, Nathan, 2014. "Economic Consequences of Forced Displacement," Working Papers 29, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    11. repec:zbw:rwirep:0432 is not listed on IDEAS
    12. Nathan Fiala, 2017. "Business is Tough, but Family is Worse: Household Bargaining and Investment in Microenterprises in Uganda," Working papers 2017-05, University of Connecticut, Department of Economics.
    13. Klohn, Florian & Strupat, Christoph, 2013. "Crowding out of Solidarity? – Public Health Insurance versus Informal Transfer Networks in Ghana," Ruhr Economic Papers 432, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    14. repec:ucp:ecdecc:doi:10.1086/697414 is not listed on IDEAS
    15. Jérôme Ballet, 2018. "Anthropology and Economics: The Argument for a Microeconomic Anthropology," Cahiers du GREThA 2018-14, Groupe de Recherche en Economie Théorique et Appliquée.
    16. repec:eee:wdevel:v:105:y:2018:i:c:p:189-200 is not listed on IDEAS
    17. Esther Gehrke & Michael Grimm, 2018. "Do Cows Have Negative Returns? The Evidence Revisited," Economic Development and Cultural Change, University of Chicago Press, vol. 66(4), pages 673-707.

    More about this item

    Keywords

    Extended family network; Investment; Private transfer; Solidarity tax; Africa; Burkina Faso;

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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