Abstract We conduct a randomized experiment that generates exogenous variation in the access to foreign markets for rug producers in Egypt. Combined with detailed survey data, we causally identify the impact of exporting on firm performance. Treatment firms report 16-26 percent higher profits and exhibit large improvements in quality alongside reductions in output per hour relative to control firms. These findings do not simply reflect firms being offered higher margins to manufacture high-quality products that take longer to produce. Instead, we find evidence of learning-by-exporting whereby exporting improves technical efficiency. First, treatment firms have higher productivity and quality after controlling for rug specifications. Second, when asked to produce an identical domestic rug using the same inputs and same capital equipment, treatment firms produce higher quality rugs despite no difference in production time. Third, treatment firms exhibit learning curves over time. Finally, we document knowledge transfers with quality increasing most along the specific dimensions that the knowledge pertained to.
with Dean Karlan and Jonathan Zinman (Journal of Development Economics, 2016)
Measuring the impacts of liquidity shocks on spending is difficult methodologically but important for theory, practice, and policy. We tackle this methodological question by identifying counterfactual spending using random assignment of microloan approvals combined with a short-run follow-up survey on major household and business cash outflows. This yields an estimate that about 100% of loan-financed spending is on business inventory. We also examine whether several other, purely survey-based methods deliver the same result, and find that borrowers answer by following the cash; i.e., borrowers likely report what they physically did with cash proceeds, rather than counterfactual spending.
Microfinance institutions (MFIs) have continued to grow over the past few decades, both in numbers of clients and portfolio sizes. The growth of these MFIs has enabled greater access to credit in many of the world's less developed nations. However, recent studies have shown that many of the poor remain unbanked. Confounding this problem in many Muslim countries is the poor's propensity to reject microfinance on religious grounds. We develop an alternative, Islamically permissible, microfinance model and test it against a Grameen-style microcredit product in an "Laboratory Experiment in the Field". Our alternative model proves to have improved take up and repayment rates than its conventional counterpart in our sample in poor Egyptian villages.
Two for-profit Philippine social enterprises, aiming to increase microlending to the poor, tested a widely-used poverty measurement tool. The banks incorporated 10 questions into their application and underwriting systems, and then randomly assigned a subset of account officers to receive: an explanation of the questions' purpose; exhortation tying the tool to the organizations' social missions; and reassurance that these data, conditional on other characteristics, do not predict default and thus should not jeopardize incentive pay based on portfolio performance. Training for the control group account officers presented these questions as merely "additional household information". This intervention backfired, leading to no additional poor applicants and lower-performing loans. Descriptive evidence suggests the intervention exacerbated loan officer misperceptions and multitasking problems, highlighting the difficulty of incentivizing personnel tasked with juggling profit and social objectives. Altogether our results help explain why corporate social responsibility efforts are often siloed from core operations.
Low utilization of credit in developing countries may be partially due to societal norms. We consider one such case in Jordan and compare the demand for a new, sharia-compliant product to a non-compliant product. To comply with the Islamic prohibition on paying or receiving interest, the sharia-compliant product uses a bank fee rather than interest payment structure, while keeping the economics of the product the same as a comparable conventional loan. We find that in this largely Muslim country, consumers offered a sharia-compliant loan increase their application rate from 18% to 22%. We also randomly varied the price of the sharia-compliant product, and find that the less religious individuals in our sample are twice as elastic with respect to price as those who are more religious. We find no evidence of differences between those who apply for the conventional loan and those that apply for the sharia-compliant loan on observable demographics, suggesting that this new product successfully increases utilization of formal financial services without necessarily pulling in more risky individuals
Credit and information constraints can affect not only participation levels in different occupations, but also the types of individuals found in those occupations. A model of occupational choice which relaxes the standard rational expectations assumption shows how new information alters expectations and thus occupational choice. Credit and information constraints also interact with each other: the same information can have opposing impacts on occupational choice depending on the presence of credit constraints. Using a survey and information experiment in seven vocational high schools in Egypt, I find support for the model's predictions, including a key compositional prediction: risk averse individuals respond more to changes in expectations of risk at both the intensive (variance of income) and extensive (probability of finding a job) margins.. This differential response leads highly risk averse individuals to shift towards "safer" occupations on average, and out of using credit to start a small enterprise. Because those who are risk averse report lower returns to credit in general (by favoring lower risk/lower return investments), the average expected income for those utilizing the credit intervention rises by 12% relative to the no information case. I discuss other areas where information interventions may influence participation in, and thus the efficacy of, complementary policies.