Macroinsurance for Microenterprises : A Randomized Experiment in Post-Revolution Egypt
Firms in many developing countries cite macroeconomic instability and political uncertainty as major constraints to their growth. Economic theory suggests uncertainty can cause firms to delay investments until uncertainty is resolved. A randomized experiment was conducted in post-revolution Egypt to measure the impact of insuring microenterprises against macroeconomic and political uncertainty. Demand for macroeconomic shock insurance was high; 36.7 percent of microentrepreneurs in the treatment group purchased insurance. However, purchasing insurance does not change the likelihood that a business takes a new loan, the size of the loan, or how the loan is invested. This lack of effect is attributed to microenterprises largely investing in inventories and raw materials rather than irreversible investments like equipment. These results suggest that, contrary to what some firms profess, macroeconomic and political risk is not inhibiting the investment behavior of microenterprises. However, insurance may still be of value to help firms cope with shocks when they do occur, but the paper is unable to examine this dimension, because the insurance product did not pay out over the course of the pilot.
| Summary: | Firms in many developing countries cite
macroeconomic instability and political uncertainty as major
constraints to their growth. Economic theory suggests
uncertainty can cause firms to delay investments until
uncertainty is resolved. A randomized experiment was
conducted in post-revolution Egypt to measure the impact of
insuring microenterprises against macroeconomic and
political uncertainty. Demand for macroeconomic shock
insurance was high; 36.7 percent of microentrepreneurs in
the treatment group purchased insurance. However, purchasing
insurance does not change the likelihood that a business
takes a new loan, the size of the loan, or how the loan is
invested. This lack of effect is attributed to
microenterprises largely investing in inventories and raw
materials rather than irreversible investments like
equipment. These results suggest that, contrary to what some
firms profess, macroeconomic and political risk is not
inhibiting the investment behavior of microenterprises.
However, insurance may still be of value to help firms cope
with shocks when they do occur, but the paper is unable to
examine this dimension, because the insurance product did
not pay out over the course of the pilot. |
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