Short-Term Impacts of Targeted Cash Grants and Business Development Services : Experimental Evidencefrom Entrepreneurs in Burkina Faso

Most support programs targeted at small firms in low- and middle-income countries fail togenerate transformative effects at a large scale due to poor targeting, too little flexibility, and the limited size ofthe support, among others. This paper assesses the short-term effects of a randomized targeted governmentsupport program for small and medium-size firms that were selected based on a business plan competition. One groupreceived large cash grants of up to US$8,000, with flexible conditions of use. A second group received grants of anequally important size but earmarked to business development services and thus less flexible and with a required owncontribution of 20 percent. A third group served as a control group. All the firms operate in agribusiness orrelated activities in a semi-urban area. An assessment of the short-term impacts shows that beneficiaries of cashgrants engage in better business practices, such as formalization and bookkeeping. They also invest more. Yet,this does not translate into higher profits and employment. There is no effect on investment and business practicesamong beneficiaries of grants for business development services. Yet, both treatment groups show a higher abilityto innovate relative to the control group. The results also show that cash grants cushioned the adverse effects of theCOVID-19 pandemic. A further round of data collection will soon allow assessing the longer-term effects of theinterventions, which may differ from the short-term effects analyzed here as both interventions may need time to unfoldtheir full effects.