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«CSAE Working Paper WPS/2014-34 Aspire* Marcel Fafchamps Simon Quinn Stanford University, BREAD and NBER University of Oxford March 2015 Abstract We ...»

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CSAE Working Paper WPS/2014-34

Aspire*

Marcel Fafchamps Simon Quinn

Stanford University, BREAD and NBER University of Oxford

March 2015

Abstract

We gave US$1,000 cash prizes to winners of a business plan competition in Africa.

The competition, entitled ‘Aspire’, was intended to attract young individuals aspiring

to become entrepreneurs. Participants were ranked by committees of judges composed

of established entrepreneurs. Each committee selected one winner among twelve candidates; that winner was awarded a prize of US$1,000 to spend at his or her discretion.

Our experiment is novel in two respects. First, we choose our recipients by competition, rather than randomization; we therefore estimate the effect of seed grants on high-potential recipients. Second, no previous research has provided sums of this magnitude to aspiring entrepreneurs. Six months after the competition, we compare winners with the two runners-up in each committee: winners are about 33 percentage points more likely to be self-employed. We estimate an average effect on monthly profits of about US$150: an annual profit of 80% on initial investment. Our findings imply that access to start-up capital constitutes a sizeable barrier to entry into entrepreneurship for the kind of young motivated individual most likely to succeed in business.

* We thank Anja Grujovic, Gertrude Mduda, Simon Franklin and Sourovi De for their excellent field assistance implementing the experiment. Field support was provided by the Ethiopian Development Research Institute in Ethipia, the Economic Development Institute in Tanzania, and RuralNet in Zambia. Financial support for this research project was provided by the World Bank and by the DFID-funded iiG Phase 2 research project.

Centre for the Study of African Economies Department of Economics. University of Oxford. Manor Road Building. Oxford OX1 3UQ T: +44 (0)1865 271084. F: +44 (0)1865 281447. E: csae.enquiries@economics.ox.ac.uk. W: www.csae.ox.ac.uk Aspire 1 Introduction Does capital constrain entry into entrepreneurship by motivated young people? To answer this question, we gave US$1,000 cash prizes to winners of a business plan competition in Africa.

The competition, entitled ‘Aspire’, is intended to attract young individuals aspiring to become entrepreneurs. Participants were ranked by committees of judges composed of established entrepreneurs. Each committee selected one winner among twelve candidates. Each winner was awarded a prize of US$1,000 to spend at his or her discretion. We compare winners with the two runners-up in each committee and we find that winners are about 33 percentage points more likely to be self-employed six months after the competition.

Our experiment is novel in two key respects. First, we choose our recipients by competition, rather than by randomization. This means that we estimate the effects of seed grants on highpotential recipients, rather than estimating the average effects across a wide range of potential entrepreneurs.1 There exists a small literature that studies unconditional cash transfers to microentrepreneurs — whether those currently running a business (see, for example, McKenzie and Woodruff (2008), De Mel, McKenzie, and Woodruff (2008), De Mel, McKenzie, and Woodruff (2012) and Fafchamps, McKenzie, Quinn, and Woodruff (2014)) or those hoping to start one (Blattman, Fiala, and Martinez, 2014; Blattman, Jamison, Green, and Annan, 2014). By construction, this literature estimates the Average Treatment Effect across a wide range of different entrepreneurs — from those with very high potential through to struggling ‘reluctant entrepreneurs’ (Banerjee and Duflo, 2011). This ATE is ideal for understanding the likely effects of policy designed to target a large number of microenterprises — for example, a large-scale roll-out of micronance (Banerjee, Duflo, Glennerster, and Kinnan, 2014).

In many situations, however, this Average Treatment Effect is not the policy parameter of interest.

We use a discontinuity design to deal with any potential endogeneity arising from this selection mechanism.

–  –  –

This is particularly the case where we wish to understand the effects of targeted assistance to star performers — for example, those who can persuade local bankers or investors of their potential, rather than merely meeting a predefined set of eligibility criteria. For example, Fischer (2013) reports on a series of lab-in-the-field experiments and urges more attention on the possibilities of equity investment for small enterprises. To understand the likely effects of such venture capital, we need a context in which recipients are chosen for their ability to impress local business experts of their enterprise potential. This is exactly what our experiment achieves.

Second, our experiment is novel in the magnitude of the cash grant provided to entrepreneurs in a developing country. To our knowledge, no previous research has provided sums approaching US$1,000 to aspiring entrepreneurs.2 This provides a useful benchmark of the likely return to venture capital for small enterprises in developing countries — where fixed costs of monitoring mean that investors either want to make a sizeable investment or not to invest at all. The Aspire competition provides a template on how this can be achieved at relatively modest cost. Similar competitions have been organized in many countries. Although these competitions differ in their details, our experiment provides a useful benchmark on the extent to which they promote selfemployment.





The paper is organized as follows. In Section 2 we describe our experimental design. Descriptive statistics are presented in Section 3. The testing strategy is the focus of Section 4, which also presents balancedness statistics and empirical results.

Haushofer and Shapiro (2014) provide grants of US$1,520 to half of the participants in their sample of the general population in rural Kenya — a sample that is deliberately not limited to entrepreneurs. Blattman, Fiala, and Martinez (2014) provide grants averaging US$382 to aspiring entrepreneurs in Uganda.

–  –  –

2 The Aspire competition In the summer of 2012, we organized business plan competitions entitled ‘Aspire’. The competitions were run in three African countries: Ethiopia, Tanzania, and Zambia. In each of them, aspiring young entrepreneurs were invited to pitch a new business idea to experienced firm managers, who acted as committee judges. Winners received a US$1,000 cash grant to spend at their discretion. The competition was financed by a World Bank study on ‘African Competitiveness in Light, Simple Manufactured Goods’.3 Funding for the endline survey of aspiring entrepreneurs was provided by DFID, through Phase 2 of the iiG programme. We conducted the business plan competitions ourselves with field support provided by local research institutions.4 In many developing countries, business plan competitions are now seen as an important tool for identifying high-potential entrepreneurs. For example, TechnoServe has run business plan competitions in Central America, Africa and India;5 the organisation is currently running the ENGINE business plan competition in Ghana, with substantial support from the UK Department for International Development (DFID). Similarly, this general format has been used recently for the African Innovation Prize (in Burundi, Rwanda and Sierra Leone), the Enablis Entrepreneurial Network’s Business Plan Competition (in Ghana), the Darecha Business Ideas Competition (in Tanzania), the SEED Awards (in Ethiopia, Kenya, Malawi, Morocco, Mozambique, Namibia, South Africa, Tanzania and Uganda), the StartUp Cup (in Cameroon, Ghana, Kenya, Rwanda and Zambia) and the YouWiN! competition (in Nigeria). Partly inspired by reality TV shows such as The Attic, Dragon’s Den and Shark Tank in the US and UK, such competitions are occasionally even televised. For example, Project Inspire Africa was a reality television competition designed to test This project is summarised at http://econ.worldbank.org/africamanufacturing. The main report has been published as Dinh, Palmade, Chandra, and Cossar (2012).

Field support was provided by the Ethiopian Development Research Institute in Ethipia, the Economic Development Institute in Tanzania, and RuralNet in Zambia.

See Klinger and Schündeln (2011) for a discussion of TechnoServe competitions in El Salvador, Guatemala and Nicaragua.

Marcel Fafchamps & Simon Quinn Aspire

and reward young African entrepreneurs in a variety of business-related challenges, with young entrepreneurs from Kenya, Rwanda and Uganda. Ruka Juu was a reality program that ran for 11 weeks in Tanzania in 2011, focusing on six young entrepreneurs.6 Similarly, Ghana’s Next Young Entrepreneur launched on GhOne TV with a similar format in 2014.

In our competition, applicants are aspiring entrepreneurs aged between 18 and 25 (inclusive). They were recruited through advertising by posters, radio and Facebook. Figure 1 shows an example of a promotional poster.7 As part of the application process, aspiring entrepreneurs were required to complete a detailed questionnaire about their business proposal, and to submit a three-page written business plan. Competition judges then assessed these questionnaires and business plans, and listened to an oral presentation by each of the contestants.

Figure 1 here.

Most judging committees comprise five or six judges, who work together to assess candidates.

Each judging committee assesses 12 applicants.8 This involves holding three meetings, each assessing four applicants. These meetings follow a clear protocol. Applicants enter the room one at a time. Each applicant speaks for about 10 minutes, then answers questions from committee judges for an additional 10 minutes. Judges then complete separate mark sheets, assessing different aspects of the applicant’s performance and business idea. Committee members then discuss the applicant for a few minutes, before calling the next applicant. At the end of each meeting, the committee is required to reach a joint ranking of all of the candidates whom the committee has Bjorvatn, Cappelen, Sekei, Sørensen, and Tungodden (2015) report a randomised controlled trial in which treated secondary school students watched episodes of this show.

We show the Zambian poster, which was in English; the Ethiopian and Tanzanian posters were respectively in Amharic in Swahili.

The design is slightly different in Zambia, as we discuss shortly.

Marcel Fafchamps & Simon Quinn Aspire

judged up to that point.9 Each committee is responsible for awarding one prize of US$1,000, given to the committee’s highest-ranked candidate; this was paid privately in cash. At the conclusion of the competition, we held a prize-giving ceremony in each country. These ceremonies were attended by the committee judges and the competition winners. These ceremonies are designed to thank participants and to congratulate the successful aspiring entrepreneurs.

Judges were drawn exclusively among managers of African manufacturing firms, and each committee judge received about US$25 per session. Judges were assigned to their tasks randomly.

Each judge attends the competition venue at an agreed time. To maximise participation, judges were allowed to choose their preferred competition session. Having arrived at this session, judges were then randomly assigned to join a specified judging committee.10 Contestants were similarly assigned to a judging committee through random selection.

There are some differences in implementation between the three countries. In Zambia, we were unable to find the originally planned number of contestants. As a result, we ran the competition with half the number of contestants and half the number of winners. We did this by having 16 committees; among the 16 applicants ranked first, we awarded eight prizes, determined on the basis of other judges’ assessment of the written business plans.11 Six months after the competition, we conducted an endline survey of all the contestants we could locate. 83.4% of the contestants could be found.

Thus, a committee ranks four candidates after its first meeting, eight candidates after its second meeting and 12 candidates after its final meeting.

Some judges were randomly assigned the role of non-committee judge for which they ranked written business proposals individually. While their assessment marks were provided to the relevant committee judges, it is unclear that they were taken into consideration. Non-committee judges are discussed more in detail in Fafchamps and Quinn (2014).

There are 185 contestants in Ethiopia, 178 in Tanzania and 78 in Zambia.

–  –  –

Table 1 presents descriptive statistics from the questionnaire that contestants filled prior to the competition. These questionnaires were filled in writing by the contestants themselves (either using pen and paper or through an online form). While the response rate is high, we are not convinced that information was always filled in a fully accurate manner – possibly because contestants thought their responses may affect the outcome of the competition. This is particularly true of questions about age and education: being in a specific age range (18 to 25) was a condition of participation and, given that the objective of the study was to investigate the effect of the competition on subsequent employment, contestants were supposed to near the completion of their studies. Education and age information were also collected in the endline survey (see the bottom of Table 3). The correlation between education levels is 0.43 across the 372 subjects who answered both baseline and endline education questions. Correlation is much higher for age, at 0.85. Nothing in our analysis depends on the possible misreporting in the baseline survey.

Table 1 here.



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