Is it both what you know and who you know?Human capital, social capital and entrepreneurial

success

Ivar Kolstadand

Arne Wiig,Chr. Michelsen Institute

Development Workshop, Luanda, 16 September 2011

Background

Survey conducted in Luanda by DW and CMI:– February to March 2010– 539 clients of Kixicredito– …from 51 randomly selected credit grops in two branches (São Paulo

and Hoje Ya Henda)

Purpose: To find out what makes a microcredit client successful in business:– More education?– Better health?– Access to networks?– Trust?

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Context: Urban areas and petty trade.

6 January 2010 Sosialøkonomenes fagkonferanse 2011, NHH 3

Problem in finding effect of education

• We have addressed this problem• We therefore have a reliable estimate of effect of

education 4

Education Profit

Ability

Problem in finding effect of health

• The next round of the survey (2013) will solve this problem

• Current data only give us an indication of effect of health

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Health Profit

Risk preference

Main results

i) An added year of schooling significantly increases entrepreneurial profits.

ii) Profits are substantially lower for entrepreneurs suffering from chronic illness.

iii) Entrepreneurs who know a local police officer have higher profits, suggesting that specific forms of networks are related to entrepreneurial success.

iv) Different family background variables are associated with the educational attainment of men and women, indicating that educational attainment is gendered.

Main variables

Descriptives

Main results

Implications so far

The importance of schooling:• Helping keep people in school longer will make it

easier for them to escape poverty through entrepreneurship

• Alternative: Business training:– Results from other studies show effect only on men

• Effect on repayment rates?

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Implications continued

The importance of health:• Chronic illness may cut profits substantially

– Malaria may cut profits in half– Stomach disorders by a third

• But these estimates need to be checked in the next round of the survey

The importance of social capital:• People who know a police office have higher profits• Why?

– Connection increases profits?– Or are people with higher profits a target for police corruption?

• No effect of other kinds of networks• No effect of trust 11

Gender differences?

Education and credit group dynamics

Are educated people more likely to give priority to their fellow solidarity group members, over outside demands?

To address this question, we performed an economic experiment as part of the survey.

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The experiment

Dictator game in two versions

Version 1: • ”At the end of this survey, we will give you a sum of 500 kwanza. You may

choose to keep this money, or give some or all of it to another member of your solidarity group. The person the money is given to will be randomly picked by us. You will not know who this other member is, and he/she will not know who you are. How much of the 500 kwanza do you want to give to the other member of your group?” (bold font added)

Version 2: • ”We will also give you an additional 500 kwanza. You may choose to keep

this money, or give some or all of it to a person outside your solidarity group. The person the money is given to will be randomly picked by us. You will not know who this person is, and he/she will not know who you are. How much of the 500 kwanza do you want to give to the person outside your group?” (bold font added) 14

Results from the experiment

Figure 1: Amounts given in dictator game

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0 100 200 300 400 500Amount given to credit group member

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0 100 200 300 400 500Amount given to outsider

Descriptive statistics

Main result

Some possible implications

More educated individuals more likely to give priority to fellow credit group members over outside demands:– Schooling may help both individual and group performance– Give educated group members a prominent position in group?

Women more likely to prioritise solidarity group over outside interests

Clients with a more cosmopolitan background are less likely to prioritize solidarity group

Do choices in dictator game predict repayment?– Results from other regions suggest a link– If so: Can use game as screening device– Requires follow up study

Concluding remarks

• Our results document importance of education:– For individual business performance– For solidarity group dynamics

• The survey presents an important baseline:– To assess the situation of clients over time– To assess the importance of health and social capital– To study other forms of interventions

• Data from the current round can provide vital new information:– On link between experimental behaviour and repayment behaviour

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Thank you!

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