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Business Literacy and Development: Evidence from Randomized Controlled Trial in Rural Mexico

Gabriela Calderon, Jesse M. Cunha, Giacomo De Giorgi. “Business Literacy and Development: Evidence from Randomized Controlled Trial in Rural Mexico” (December 2013). National Bureau of Economics Research, Working Paper Series, number 19740.

Abstract

A large share of the poor in developing countries run small enterprises, often earning low incomes. This paper explores whether the poor performance of businesses can be explained by a lack of basic business skills. We randomized the offer of a free, 48-hour business skills course to female entrepreneurs in rural Mexico. We find that those assigned to treatment earn higher profits, have larger revenues, serve a greater number of clients, are more likely to use formal accounting techniques, and more likely to be registered with the government. Indirect treatment effects on those entrepreneurs randomized out of the program, yet living in treatment villages, are economically meaningful, yet imprecisely measured. We present a simple model of experience and learning that helps interpret our results, and consistent with the theoretical predictions, we find that “low-quality” entrepreneurs are the most likely to quit their business post-treatment, and that the positive impacts of the treatment are increasing in entrepreneurial quality.

Opportunity versus Necessity: Understanding the Heterogeneity of Female Micro-Entrepreneurs

Gabriela Calderon, Leonardo Lacovone, Laura Juarez (2016) “Opportunity versus Necessity: Understanding the Heterogeneity of Female Micro-Entrepreneurs.” The World Bank Economic Review, Volume 30, Issue Supplement_1, Pages s86-s96.

Abstract

Entrepreneurs that voluntarily choose to start a business because they are able to identify a good business opportunity and act on it—opportunity entrepreneurs—might be different along various dimensions from those who are forced to become entrepreneurs because of lack of other alternatives—necessity entrepreneurs. To provide evidence on these differences, this article exploits a unique data set covering a wide array of characteristics, including cognitive skills, noncognitive skills, and managerial practices, for a large sample of female entrepreneurs in Mexico. Descriptive results show that on average opportunity entrepreneurs have better performance and higher skills than necessity entrepreneurs. A discriminant analysis reveals that discrimination is difficult to achieve based on these observables, which suggests the existence of unobservables driving both the decision to become an opportunity entrepreneur and performance. Thus, an instrumental variables estimation is conducted, using state economic growth in the year the business was set up as an instrument for opportunity, to confirm that opportunity entrepreneurs have higher performance and better management practices.

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