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 language | English (US) |
|---|---|
| Pages (from-to) | 13-25 |
| Number of pages | 13 |
| Journal | Journal of Development Economics |
| Volume | 118 |
| DOIs | |
| State | Published - Jan 1 2016 |
Funding
The authors thank the study participants, Alexandria Business Association (ABA) for their partnership in this research, Innovations for Poverty Action (IPA) for project management, El-Zanaty and Associates for excellent survey work, and Tara Vishwanath for her collaboration on early stages of this work. Galal Ali provided excellent research assistance. We thank the editor and two anonymous referees for helpful comments. We gratefully acknowledge funding (and patience) from the International Initiative for Impact Evaluation (3ie) through the Global Development Network (GDN), and funding from the World Bank through the Knowledge for Change (KCP), Strategic Research Program (SRP), and TFESSD Trust Funds. Human Subjects Approval for this research was obtained from the Innovations for Poverty Action IRB (255.12March-002). A pre-analysis plan was registered with the J-PAL hypothesis registry (August 3, 2012). The views expressed in this article are those of the authors alone, and do not necessarily reflect those of the World Bank, or the funders of this research.
Keywords
- Egypt
- Insurance
- Microenterprises
- Political instability
- Risk
- Uncertainty
ASJC Scopus subject areas
- Development
- Economics and Econometrics
