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Cash Transfers and Micro-Enterprise Performance: Theory and Quasi-Experimental Evidence from Kenya

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  • Olivier Sterck
  • Antonia Delius

Abstract

Theoretically, the effect of household cash transfers depends on how businesses respond to the demand shock and on the resulting effect on prices. Such market effects have been largely overlooked in the literature, which mostly focuses on direct impacts on households. We study the impact of a household cash transfer program on retail businesses operating in two refugee sites in Kenya. Refugees receive a monthly mobile money transfer that can only be spent at licensed businesses. We compare licensed and unlicensed businesses, using matching methods to control for all variables considered in the licensing process. We show that licensed businesses have much higher revenues (+175%) and profits (+154%) and charge higher prices than unlicensed businesses. In line with theory, the cash transfer program created a parallel retail market in which a limited number of businesses enjoy high market power. We identify a series of market imperfections explaining the results.

Suggested Citation

  • Olivier Sterck & Antonia Delius, 2020. "Cash Transfers and Micro-Enterprise Performance: Theory and Quasi-Experimental Evidence from Kenya," CSAE Working Paper Series 2020-09, Centre for the Study of African Economies, University of Oxford.
    • Handle: RePEc:csa:wpaper:2020-09
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    Cited by:

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    2. Jules Gazeaud & Eric Mvukiyehe & Olivier Sterck, 2023. "Cash Transfers and Migration: Theory and Evidence from a Randomized Controlled Trial," The Review of Economics and Statistics, MIT Press, vol. 105(1), pages 143-157, January.
    3. Sibhatu, Kibrom T. & Arslan, Aslihan & Zucchini, Emanuele, 2022. "The effect of agricultural programs on dietary diversity and food security: Insights from the smallholder productivity promotion program in Zambia," Food Policy, Elsevier, vol. 113(C).
    4. Vintar,Mirko & Beltramo,Theresa Parrish & Delius,Antonia Johanna Sophie & Egger,Dennis Timo & Pape,Utz Johann, 2022. "Impact of COVID-19 on Labor Market Outcomes of Refugees and Nationals in Kenya," Policy Research Working Paper Series 9960, The World Bank.
    5. Betts, Alexander & Flinder Stierna, Maria & Omata, Naohiko & Sterck, Olivier, 2023. "Refugees welcome? Inter-group interaction and host community attitude formation," World Development, Elsevier, vol. 161(C).

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    More about this item

    Keywords

    Cash Transfers; Micro-Enterprises; Market imperfections; Salop circle;
    All these keywords.

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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