Macroinsurance for microenterprises: A randomized experiment in post-revolution Egypt

Matthew Groh, David McKenzie*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

Firms in many developing countries cite macroeconomic instability and political uncertainty as major constraints to their growth. We conduct a randomized experiment in post-revolution Egypt to measure the impact of insuring microenterprises against this uncertainty. Demand for macroeconomic shock insurance was high, with a take-up rate of 36.7%. However, purchasing insurance does not change the likelihood a business takes a new loan, the size of the loan, or how they invest this loan. We attribute this lack of effect to microenterprises largely investing in inventories and raw materials rather than irreversible investments like equipment, suggesting that macroeconomic and political risk is not inhibiting their investment behavior. The challenges of introducing an innovative insurance product in an environment where microentrepreneurs had little previous insurance exposure are particularly evident in a second year, where take-up was extremely low following political events that came close to, but did not, trigger insurance pay-outs.

Original languageEnglish (US)
Pages (from-to)13-25
Number of pages13
JournalJournal of Development Economics
Volume118
DOIs
StatePublished - Jan 1 2016

Keywords

  • Egypt
  • Insurance
  • Microenterprises
  • Political instability
  • Risk
  • Uncertainty

ASJC Scopus subject areas

  • Development
  • Economics and Econometrics

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