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Entrepreneurial Saving Practices and Reinvestment: Theory and Evidence from Tanzanian MSEs

  • Thorsten Beck
  • Haki Pamuk
  • Burak R. Uras

What is the relationship between entrepreneurial saving practices and reinvestment? We develop a model of entrepreneurial finance and show that entrepreneurial reinvestment decisions depend on the efficiency of saving practices. Utilizing a novel micro & small enterprise survey from Tanzania we test the empirical implications of this theory. We find (1) saving for business purposes and earnings reinvestment are positively related; (2) the practice of saving in a deposit account of a formal financial institution is more likely to facilitate reinvestment compared to the practice of keeping savings within the household. We also show that the negative impact of saving within-the-household on investment is more pronounced for family members with inherently low intra-household bargaining power - such as females and non-head household members. Our work contributes to the recent debate on the implications of saving instruments in developing countries, and suggests informal saving practices as potential barriers to microenterprise performance.

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Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2014-15.

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Date of creation: 2014
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Handle: RePEc:csa:wpaper:2014-15
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