Economic research has shown that, on occasion, workers and firms fail to take advantage of relatively low-cost profitable investment opportunities. One of these opportunities may be business relocation to a more profitable part of the city. Preliminary research shows that business location in Kampala can explain 14% of the variation in microenterprise profits, after conditioning on important covariates such as business owner gender, education, experience, sector of work, and asset stock. Moreover, the gains to business relocation appear potentially large: microenterprise profit more than triples from about $2/day to over $6/day between the 10th and 90th percentile city wards, when wards are ranked based on their associated profit level, conditional on the same set of covariates listed above. However, there remains debate over the constraints that may limit entrepreneurs’ ability to make profitable investments. This project will investigate the types of constraints that microfirms face in relocating, by testing for the presence of informational and liquidity frictions.
The researcher will use a multi-arm experiment that allocates conditional (CCT) and unconditional (UCT) cash grants of equivalent value to microentrepreneurs, cross-randomised with an information provision about profit dispersion within the city. The CCT and UCT grants allocate $2/day to entrepreneurs for ten days, which cover the estimated relocation costs for 75% of the sample according to pilot results. The cross-randomisation enables the researcher to test whether there is a differential effect of relieving liquidity and information constraints simultaneously, and in particular whether information drives take-up of the CCT or a more productive use of the UCT. The researcher will also test for spillover effects on control group respondents and whether any spillovers translate to price effects through reduced competition. Data will be collected in a baseline survey, three short “midline” surveys occurring during the 10-day intervention period to track respondent location, and two endline surveys. The second endline survey, conducted several months after the first, will test whether any effects persist after the liquidity intervention ceases.
This project will shed light on whether spatial interventions can increase the productivity of urban microfirms. Self-employment accounts for 50% of the labour force in low-income countries, with most of these firms earning low profits and hiring few employees. Thus, increasing the productivity of small firms is vital to both anti-poverty policy and the sustainable growth of developing countries. This project will also provide other researchers with a valuable individual-level, geocoded panel dataset of low-income microentrepreneurs, who, despite their ubiquity in low-income countries, rarely feature in administrative firm-level datasets due to their informality.
