Direct and Spillover Effects of a Business Support Program: Evidence from a Randomized Experiment

Abstract

Access to capital is widely believed to enable small businesses to grow and create jobs, but the general equilibrium effects of such interventions remain poorly understood. We evaluate the market-level impacts of a large cash grant program offered to microenterprise owners in Liberia. Using a two-stage randomized design---first randomly assigning half of markets to treatment and then allocating grants by public lottery within treated markets---we identify both direct effects on recipients and spillover effects on untreated competitors operating in the same market. We find that grant recipients experience substantial increases in revenues, savings, investment in productive assets, and employment. Strikingly, untreated firms in treated markets also record higher sales and profits relative to firms in untreated markets, with smaller employment gains and little change in assets. This pattern is most consistent with spillovers driven by local demand expansion rather than business stealing or input cost reductions. Our findings suggest that the social returns to such interventions may exceed the private returns, with important implications for policies aimed at firm growth and local economic development.