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.
Fafchamps, M.; Quinn, S. Aspire. CSAE Economics Department, University of Oxford, Oxford, UK (2015) 34 pp. [CSAE Working Paper WPS/2014-34]