Sangam: A Confluence of Knowledge Streams

Experimental Evidence on Returns to Capital and Access to Finance in Mexico

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dc.creator McKenzie, David
dc.creator Woodruff, Christopher
dc.date 2012-03-30T07:12:37Z
dc.date 2012-03-30T07:12:37Z
dc.date 2008-12-01
dc.date.accessioned 2023-02-18T19:41:19Z
dc.date.available 2023-02-18T19:41:19Z
dc.identifier World Bank Economic Review
dc.identifier 1564-698X
dc.identifier http://hdl.handle.net/10986/4488
dc.identifier.uri http://localhost:8080/xmlui/handle/CUHPOERS/249973
dc.description A strong theoretical argument for focusing on access to finance is that financial market imperfections can result in large inefficiencies, as firms with productive investment opportunities underinvest. Lack of access to finance is a frequent complaint of microenterprises, which account for a large share of employment in developing countries. However, assessing the extent to which a lack of capital affects their business profits is complicated by the fact that business investment is likely to be correlated with a host of unmeasured characteristics of the owner and firm, such as entrepreneurial ability and demand shocks. In a randomized experiment that gave cash and in-kind grants to small retail firms, providing an exogenous shock to capital, the shock generated large increases in profits, with the effects concentrated among firms that were more financially constrained. The estimated return to capital was at least 20–33 percent a month—three to five times higher than market interest rates.
dc.publisher World Bank
dc.rights CC BY-NC-ND 3.0 IGO
dc.rights http://creativecommons.org/licenses/by-nc-nd/3.0/igo
dc.rights World Bank
dc.subject access to loans
dc.subject developing countries
dc.subject financial institutions
dc.subject financial market
dc.subject investment opportunities
dc.subject market interest rates
dc.subject microenterprises
dc.subject productive investment
dc.subject return
dc.subject returns
dc.title Experimental Evidence on Returns to Capital and Access to Finance in Mexico
dc.type Journal Article
dc.type Journal Article
dc.coverage Latin America & Caribbean
dc.coverage Mexico


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