Cash Transfers and Micro-Enterprise Performance: Theory and Quasi-Experimental Evidence from Kenya

Abstract

Theoretically, the effect of household cash transfers depends on how businesses respond to the demand shock and on the resulting effect on prices. Such market effects have been largely overlooked in the literature, which mostly focuses on direct impacts on households. We study the impact of a household cash transfer program on retail businesses operating in two refugee sites in Kenya. Refugees receive a monthly mobile money transfer that can only be spent at licensed businesses. We compare licensed and unlicensed businesses, using matching methods to control for all variables considered in the licensing process. We show that licensed businesses have much higher revenues and profits and charge higher prices than unlicensed businesses. The cash transfer program created a parallel retail market in which a limited number of businesses enjoy high market power. We identify a series of market imperfections explaining the results.

Humanitarian vs. Development Aid for Refugees: Evidence from a Regression Discontinuity Design

“…The Kakuma camp offers limited opportunities for agriculture or other incomegenerating activities, first, because the camp is situated in a remote, poor, and arid area, and second, because Kenya's encampment policy imposes legal restrictions on refugees' right to work and freedom of movement. To be sure, some businesses are thriving in Kakuma, especially in the oldest parts of the camp where the liveliest markets are located (Delius and Sterck 2019;IFC 2018). But success is for the few, not the many.…”

“…The different modalities of food assistance are also likely to influence prices. In Kalobeyei, the food retail market is highly dependent on Bamba Chakula transfers, which have to be spent at specific shops (Delius and Sterck 2019) and residents are restricted to spending their transfer in Kalobeyei only. In Kakuma, many refugees sell part of their food rations at low prices to obtain cash to purchase firewood, soap, medicine, and pens (WFP 2018a).…”

“…This practice is therefore likely to favor consumption smoothing and reduce food insecurity. While a staggering 82% of Kalobeyei households store their practice (Delius and Sterck 2019).…”

Cash Transfers and Migration: Theory and Evidence from a Randomized Controlled Trial

“…8 The cash-transfer literature also identified both positive and negative externalities on non-beneficiaries through transfers or market effects (see e.g. Angelucci and De Giorgi 2009;Cunha et al 2018;Haushofer and Shapiro 2018;D'Aoust et al 2018;Delius and Sterck 2020). Our results suggest that migration is an additional, understudied, source of externality affecting host populations.…”

“…While the results suggest that the program had a positive effect on remittances, 26 The measure of household income is the sum of the monthly income at baseline and, for households who participated in the cash-for-work program, the monthly average value of transfers received. We exclude from this analysis the 11% of households that do not report income at baseline, as the concept of elasticity does not make sense in zero (Delius and Sterck, 2020). 27 We use the formula exp(β) − 1 to approximate the semi-elasticity.…”