Knowledge that Transforms

In difference-in-differences applications, identification of the key parameter often arises from changes in policy by a small number of groups. In contrast, typical inference assumes that the number of groups changing policy is large. We present an alternative inference approach for a small (finite) number of policy changers, using information from a large sample of nonchanging groups. Treatment effect point estimators are not consistent, but we can consistently estimate their asymptotic distribution under any point null hypothesis about the treatment. Thus, treatment point estimators can be used as test statistics, and confidence intervals can be constructed using test statistic inversion.

Using a panel of U.S. metropolitan areas, we find that increases in the supply of venture capital positively affect firm starts, employment, and aggregate income. Our results remain robust to a variety of specifications, including ones that address endogeneity. The estimated magnitudes imply that venture capital stimulates the creation of more firms than it funds, which appears consistent with two mechanisms: First, would-be entrepreneurs anticipating financing needs more likely start firms when the supply of capital expands. Second, funded companies may transfer know-how to their employees, thereby enabling spin-offs, and may encourage others to become entrepreneurs through demonstration effects.

Most academic and development policy discussions about microentrepreneurs focus on credit constraints and assume that subject to those constraints, the entrepreneurs manage their business optimally. Yet the self-employed poor rarely have any formal training in business skills. A growing number of microfinance organizations are attempting to build the human capital of microentrepreneurs in order to improve the livelihood of their clients and help further their mission of poverty alleviation. Using a randomized control trial, we measure the marginal impact of adding business training to a Peruvian group lending program for female microentrepreneurs. Treatment groups received thirty- to sixty-minute entrepreneurship training sessions during their normal weekly or monthly banking meeting over a period of one to two years. Control groups remained as they were before, meeting at the same frequency but solely for making loan and savings payments. We find little or no evidence of changes in key outcomes such as business revenue, profits, or employment. We nevertheless observed business knowledge improvements and increased client retention rates for the microfinance institution.

The paper explores the evolution of export diversification patterns along the economic development path. Using a large database with 156 countries over 19 years at the HS6 level of disaggregation (4,991 product lines), we look for action at the intensive and extensive margins. We find a hump-shaped pattern of export diversification similar to what Imbs and Wacziarg (2003) found for production. Diversification and subsequent reconcentration take place mostly along the extensive margin. This hump-shaped pattern is consistent with the conjecture that countries travel across diversification cones, as discussed in Schott (2003, 2004) and Xiang (2007).

The front matter of the April 2011 issue contains the Table of Contents

The front matter of the June 2011 issue contains the Table of Contents

The front matter of the May 2011 issue contains the Table of Contents