Returns to Capital: Results from a Randomized Experiment

We use randomized grants to generate shocks to capital stock for a set of Sri Lankan microenterprises. We find the average real return to capital in these enterprises is 4.6-5.3 percent per month (55-63 percent per year), substantially higher than market interest rates. We then examine the heterogeneity of treatment effects. Returns are found to vary with entrepreneurial ability and with household wealth, but not to vary with measures of risk aversion or uncertainty. Treatment impacts are also significantly larger for enterprises owned by males; indeed, we find no positive return in enterprises owned by females.

de Mel et al (2008)

Region:

Urban. RCT.Capital grants in cash or in kind ($100 or $200).No significant impact on earnings.http://siteresources.worldbank.org/INTFR/Resources/McKenzieReturnstoCapital.pdf385 microenterprises, 49% female-owned.