TY - JOUR
T1 - Liquidity constraints, spillovers, and entrepreneurship
T2 - evidence from a cash transfer program
AU - Ribas, Rafael P.
N1 - Publisher Copyright:
© 2019, The Author(s).
PY - 2020/12/1
Y1 - 2020/12/1
N2 - This paper exploits a liquidity shock from a welfare program in Brazil to investigate the role of financial constraints, in opposition to general equilibrium mechanisms, in explaining entrepreneurship. Previous research focuses exclusively on how liquidity changes recipients’ behavior through direct effects on reducing constraints. However, liquidity shocks may also produce spillovers from recipients to others and thereby indirectly affect entrepreneurial decisions. This paper presents a method for decomposing the liquidity shock into direct effects associated with relieving individual constraints, and indirect effects associated with spillovers to other individuals. Results suggest that the program, which assists 20 percent of Brazilian households, increased the number of small entrepreneurs by 10 percent. However, this increase is entirely driven by the indirect effect. Further tests suggest that this effect is associated with an increase in private transfers between households. Thus, entrepreneurship tends to respond more to the interaction between households than to financial constraints.
AB - This paper exploits a liquidity shock from a welfare program in Brazil to investigate the role of financial constraints, in opposition to general equilibrium mechanisms, in explaining entrepreneurship. Previous research focuses exclusively on how liquidity changes recipients’ behavior through direct effects on reducing constraints. However, liquidity shocks may also produce spillovers from recipients to others and thereby indirectly affect entrepreneurial decisions. This paper presents a method for decomposing the liquidity shock into direct effects associated with relieving individual constraints, and indirect effects associated with spillovers to other individuals. Results suggest that the program, which assists 20 percent of Brazilian households, increased the number of small entrepreneurs by 10 percent. However, this increase is entirely driven by the indirect effect. Further tests suggest that this effect is associated with an increase in private transfers between households. Thus, entrepreneurship tends to respond more to the interaction between households than to financial constraints.
KW - Cash transfers
KW - Entrepreneurship
KW - Financial constraint
KW - Indirect effect
KW - Informality
KW - Private transfers
UR - http://www.scopus.com/inward/record.url?scp=85066916294&partnerID=8YFLogxK
U2 - 10.1007/s11187-019-00178-1
DO - 10.1007/s11187-019-00178-1
M3 - Article
AN - SCOPUS:85066916294
SN - 0921-898X
VL - 55
SP - 1131
EP - 1158
JO - Small Business Economics
JF - Small Business Economics
IS - 4
ER -