Little cash into small businesses to enhance entrepreneurship in Brazil

In general, it is suggested that capital is essential for starting a business and liquidity constraint tends to exclude those with insufficient funds at their disposal. The paper ‘Direct and Indirect Effects of Cash Transfer on Entrepreneurship‘ by Rafael P. Ribas (University of Illinois) examines the importance of financial constraints in explaining entrepreneurship among poor households by exploring the liquidity shock promoted by a large-scale conditional cash transfer (CCT) program in Brazil. (See presentation by Rafael P. Ribas)

The results suggest that entrepreneurship in Brazil has grown 10% due to the Bolsa Família program. However, this rise is almost entirely driven by externalities. Further tests reject the hypothesis that these transfers boost investment opportunities and indicate that they actually foster informal financing mechanisms. On the other hand, beneficiaries are less likely to become entrepreneurs than their neighbors. Thus the transfer might not help participating households as much as it does other neighbor households to finance their enterprise.

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