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Can microcredit impact the activity of small and medium enterprises? New evidence from a Regression Discontinuity Design in Panama

Author

Listed:
  • Nene Oumou

    () (Département d'économique, Université de Sherbrooke)

  • Jonathan Goyette

    () (Département d'économique, Université de Sherbrooke)

Abstract

In this paper, we conduct an impact analysis of microcredit on entrepreneurial activity using a new data-set collected among 740 entrepreneurs located in Panama. Our focus is on a new type of microfinance institution which grants loans to enterprises falling in what we call the financial missing middle Our results show a limited impact of access to credit on firm's revenues despite a significant impact on investment in equipment and immobilization. The magnitude of the positive effect is higher on micro-enterprises while auto-enterprises are negatively impacted by microcredit as is usually documented in the literature. We emphasize that the cost of credit is one of the major determinants of the limited impact of microcredit on entrepreneurial activity.

Suggested Citation

  • Nene Oumou & Jonathan Goyette, 2016. "Can microcredit impact the activity of small and medium enterprises? New evidence from a Regression Discontinuity Design in Panama," Cahiers de recherche 16-05, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke.
  • Handle: RePEc:shr:wpaper:16-05
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    File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-1605.pdf
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    References listed on IDEAS

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    1. Alessandro Tarozzi & Jaikishan Desai & Kristin Johnson, 2015. "The Impacts of Microcredit: Evidence from Ethiopia," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 54-89, January.
    2. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
    3. Sebastian Calonico & Matias D. Cattaneo & Rocio Titiunik, 2014. "Robust data-driven inference in the regression-discontinuity design," Stata Journal, StataCorp LP, vol. 14(4), pages 909-946, December.
    4. Sebastian Calonico & Matias D. Cattaneo & Rocio Titiunik, 2014. "Robust Nonparametric Confidence Intervals for Regression‐Discontinuity Designs," Econometrica, Econometric Society, vol. 82, pages 2295-2326, November.
    5. Abhijit Vinayak Banerjee, 2013. "Microcredit Under the Microscope: What Have We Learned in the Past Two Decades, and What Do We Need to Know?," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 487-519, May.
    6. Britta Augsburg & Ralph De Haas & Heike Harmgart & Costas Meghir, 2015. "The Impacts of Microcredit: Evidence from Bosnia and Herzegovina," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 183-203, January.
    7. Manuela Angelucci & Dean Karlan & Jonathan Zinman, 2015. "Microcredit Impacts: Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 151-182, January.
    8. Cyril Fouillet & Marek Hudon & Barbara Harriss-White & James Copestake, 2013. "Microfinance Studies: Introduction and Overview," Oxford Development Studies, Taylor & Francis Journals, vol. 41(sup1), pages 1-16, August.
    9. Bruno Crépon & Florencia Devoto & Esther Duflo & William Parienté, 2015. "Estimating the Impact of Microcredit on Those Who Take It Up: Evidence from a Randomized Experiment in Morocco," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 123-150, January.
    10. Morduch, Jonathan, 2000. "The Microfinance Schism," World Development, Elsevier, vol. 28(4), pages 617-629, April.
    11. Guido Imbens & Karthik Kalyanaraman, 2012. "Optimal Bandwidth Choice for the Regression Discontinuity Estimator," Review of Economic Studies, Oxford University Press, vol. 79(3), pages 933-959.
    12. Orazio Attanasio & Britta Augsburg & Ralph De Haas & Emla Fitzsimons & Heike Harmgart, 2015. "The Impacts of Microfinance: Evidence from Joint-Liability Lending in Mongolia," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 90-122, January.
    13. Mark M. Pitt & Shahidur R. Khandker, 1998. "The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 958-996, October.
    14. Pablo Cotler & Christopher Woodruff, 2008. "The Impact of Short-Term Credit on Microenterprises: Evidence from the Fincomun-Bimbo Program in Mexico," Economic Development and Cultural Change, University of Chicago Press, vol. 56, pages 829-849.
    15. repec:ags:stataj:267111 is not listed on IDEAS
    16. John Weiss & Heather Montgomery, 2005. "Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America," Oxford Development Studies, Taylor & Francis Journals, vol. 33(3-4), pages 391-416.
    17. Andrew Gelman & Guido Imbens, 2014. "Why High-order Polynomials Should not be Used in Regression Discontinuity Designs," NBER Working Papers 20405, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Microfinance Institutions; firm’s performance; Regression Discontinuity; Panama;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • 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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