Empowering the poor

Can basic entrepreneurship transform the economic lives of the poor?

SpeakerOriana Bandiera, Professor of Economics & Director, Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD), London School of Economics and Political Science

October 24, 2012, 5-6:30 pm; Venue: LIDC 36 Gordon Square Upper Meeting Room. London WC1H 0PD

The world's poorest people lack both capital and skills and typically engage in insecure and often seasonal occupations where they labor for others. The non-poor, in contrast, tend to be employed in running their own businesses or in secure wage employment. Whether the lack of capital and skills determines occupational choice and poverty is however unknown. We provide causal evidence by conducting a randomised evaluation of a programme that provides assets and training to the poorest women in rural Bangladesh. 

A simple theoretical model of occupational choice under capital constraints makes clear that the effect of assets transfers and training on occupational choice is generally ambiguous. We find that the programme transforms the occupational choices of the treated poor women as they spend 92% more hours in self-employment running their new livestock businesses and 26% fewer hours in insecure wage labor. The change in occupation is associated with an increase in earnings (38%), productivity (15%), per capita expenditures (15%) and self-reported life satisfaction. Quantile treatment estimates suggest that the program effects on earnings and PCE are very heterogeneous but positive at all deciles. Despite its large outlay, the cost benefit analysis reveals that the programme is preferable to a cash transfer. The magnitude of the effects is such that four years after the start of the programme treated women begin to resemble middle class women in the rural communities that we study on dimensions such as livestock holdings, time devoted to self-employment, regularity of economic activity, and per capita expenditure.

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