The Impact of Micro-credit on Employment : Evidence from Bangladesh and Pakistan

Khan, Azhar and Rahman, Twyeafur and Wright, Robert E. (2016) The Impact of Micro-credit on Employment : Evidence from Bangladesh and Pakistan. Discussion paper. Institute for the Study of Labor (IZA), Bonn.

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Abstract

This paper examines the impact of micro-credit on employment. Household-level data was collected, following a quasi-experimental design, in Bangladesh and Pakistan. Three borrower groups are compared: Current borrowers; Pipeline borrowers and Non-borrowers. Pipeline borrowers are included to control for self-selection effects. It is argued that micro-credit causes a substitution of employment away from employment-for-pay to self-employment. Therefore, the effect on total employment is ambiguous. OLS and fixed effects regression are used to examine separately self-employment and employment-for-pay between three groups of borrowers. For Pakistan, there is no evidence that micro-credit effects employment. However, for Bangladesh, there is robust evidence consistent with this hypothesis.

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