Do Urban Livelihoods Programmes Work?

Apparently not in Sri Lanka.

The authors conduct a randomized experiment among women in urban Sri Lanka to measure the impact of the most commonly used business training course in developing countries, the Start-and-Improve Your Business program. They work with two representative groups of women: a random sample of women operating subsistence enterprises and a random sample of women who are out of the labor force but interested in starting a business. They track the impacts of two treatments -- training only and training plus a cash grant -- over two years with four follow-up surveys and find that the short and medium-term impacts differ. For women already in business, training alone leads to some changes in business practices but has no impact on business profits, sales or capital stock. In contrast, the combination of training and a grant leads to large and significant improvements in business profitability in the first eight months, but this impact dissipates in the second year. For women interested in starting enterprises, business training speeds up entry but leads to no increase in net business ownership by the final survey round.

Suresh de Mel, David  McKenzie, and Christopher Woodruff , "Business training and female enterprise start-up, growth, and dynamics: experimental evidence from Sri Lanka" (HT: @timothyogden)

Why don't microenterprises grow?

A couple of very interesting ideas from David McKenzie that I hadn't heard before in the second part of his interview with Tim Ogden:  (here is part one)

maybe microenteprises are viable because the "reserve wage" of their owners is so low; 

If you start trying to value the opportunity cost of that labor and you calculate it at some sort of market wage rate quickly you’ll find that many of these businesses look unprofitable ... 

why it is that microfinance can get a woman to run somewhat profitable businesses with chickens and things but they never get those businesses to grow into something greater. And the whole thing is that the women in these Asian countries have no other options. When their time value is 0 they can do this but as soon as they have to hire somebody at market wage it becomes unprofitable to expand.

and measuring microenterprise profit is generally really really hard; 

if you look at the Banerjee and Duflo Spandana paper, for instance, there’s a huge amount of noise in their profits data. I did some calculations and I think it came out that they would need 2 million people to find an increase of 10% in profits given the take-up of microfinance and the noise in profit measurements

Finally; I am really looking forward to Tim's new book, Experimental Conversations, based on interviews with a variety of economists conducting field experiments on poverty interventions. One of the best books I ever read on macroeconomics was a book of interviews. There is a tremendous amount that goes unwritten in journal articles. Blogs have increased access to this kind of informal chat, but there is probably still an undersupply of good ideas communicated well. In Tyler Cowen's words; 

why do not more economists blog? I believe it is because they can’t, at least not without embarrassing themselves rather quickly, even if they are smart and very good economists. It’s simply a different set of skills.

As Freakonomics demonstrated ably (at least the original book), researcher-journalist collaborations can be a decent way of filling the gap. David McKenzie is one of my favourite economists, doing lots of fascinating research, and he blogs. And yet I hadn't heard either of these two fairly substantial points before.

When Cash isn't best

We randomly gave cash and in-kind grants to male- and female-owned microenterprises in urban Ghana. Our findings cast doubt on the ability of capital alone to stimulate the growth of female microenterprises. First, while the average treatment effects of the in-kind grants are large and positive for both males and females, the gain in profits is almost zero for women with initial profits below the median, suggesting that capital alone is not enough to grow subsistence enterprises owned by women. Second, for women we strongly reject equality of the cash and in-kind grants; only in-kind grants lead to growth in business profits. The results for men also suggest a lower impact of cash, but differences between cash and in-kind grants are less robust. 

Marcel Fafchamps, David McKenzie, Simon Quinn, Christopher Woodruff