THE IMPACT OF RETAIL-OWNED BANKS ON EMPLOYMENT AND ENTREPRENEURSHIP: EVIDENCE FROM MEXICO
Cadena Kotsubo, Kiyomi Erika
The purpose of this paper is to study the impact of providing financial access to low and middle-income individuals on employment outcomes and entrepreneurial activities. I use evidence from a case in Mexico, where in 2006 the Ministry of Finance authorized five retailers to add banking services to their pre-existing locations in order to target low income customers. This study is unique because: (i) it is the first to measure the impact of that policy change on employment outcomes and (ii) it is the first to study the effect of a massive increase in banking services in Mexico using the data from five different "retail-owned banks".When the policy was introduced in 2007, the distribution and density of pre-existing retail stores, which were turned into bank branches, was uneven across municipalities. This pre-existent difference in retail stores across municipalities (together with the change in policy in 2006) can be exploited as a "quasi-natural experiment" to identify a shift in supply of banking services. Therefore, I use a Difference-in-Difference model to calculate the changes in employment and entrepreneurship between municipalities that received a branch versus municipalities that did not receive a new branch after the policy change.The results of this analysis suggest that enhancing access to finance to low and middle-income individuals can have a positive impact on informal entrepreneurship. In particular, the likelihood of being an informal business owner increased by about one percentage point for males. However, the results also indicate that the likelihood of being a male formal business owner decreased by 0.46 percentage points. Therefore, it is important to recognize that: first, although introducing this type of banking can increase entrepreneurship, this might mainly be in the informal sector and it might even shift potential formal entrepreneurs to the informal sector; and, second this policy has no significant effect on women entrepreneurship.
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