and high spreads between deposit and lending rates are characteristic of the underdeveloped financial markets found in low‐income developing countries, so it is not surprising that many interventions seek to offer entrepreneurs cheaper money for investment and working capital. It is difficult to use experimental evaluations in this area, as banks do not want to offer loans to a random selection of borrowers and see who defaults. Empirical evidence suggests, however, that increasing access to finance, particularly for micro, small, and medium enterprises (which face bigger credit constraints) and firms that rely more heavily on debt finance, does create more jobs. Intuitively, it makes sense that access to cheap financing will allow firms to purchase more capital assets, and that converting assets into increased production usually requires more labor.<sup>13</sup>

**Table 2: Demand‐side interventions to increase wage employment**

|**Inputs**|**Key results**|
|---|---|
||**Microcredit:**Evaluations of six studies in Bosnia, Ethiopia, India, Mexico, Morocco, and Mongolia<br>showed positive effects for start ups, but no employment effects for existing firms. Small loans<br>(US$180–200)in Uganda also showed no employment effects.|
|**Access to**<br>**finance (credit,**<br>**grants)**|**Larger loans**: Subsidized credit and credit guarantees had slightly positive employment effects in Brazil,<br>Colombia,and in larger firms in India. Microenterprises in India saw no employment effect.|
||In Nigeria, a**large cash grant (averaging US$50,000)**was awarded to existing entrepreneurs for a<br>business plan competition, with positive effects on employment. Grants in Uganda, which were only<br>about US$200,experienced low uptake and had no effect on employment.|
|**Financial**<br>**literacy,**<br>**business**<br>**development**<br>**services (BDS),**<br>**and**<br>|**Quality business development consulting**, particularly when targeted at developing management skills<br>and provided by consulting firms, showed positive employment effects in Argentina, Chile, India, and<br>Mexico. Depending on the provider, BDS interventions can vary in cost‐effectiveness and many effects<br>may take several years to develop. Area of intervention matters: A BDS intervention in South Africa<br>found that training focused on marketing and sales produced employment effects, while training<br>focused on operational practices and financial management increased efficiency and firm profits<br>without corresponding increases in employment or the wage bill.|
|**managerial**<br>**skills**|**Firm type matters:**A BDS training intervention in Ghana targeted to microenterprises found no<br>employment or earning effects.|
|**Formalization,**<br>**tax policy**|Interventions to increase**registration and business formalization**show limited results. Simplifying<br>registration processes in Argentina and Brazil showed increases in formal employment, but net effects<br>on employment are unclear. Other Latin American countries similarly showed that formalization might<br>have an effect on new or entering firms, but existing firms showed no notable employment effects.<br>Paying firms to formalize also showed no effects in Sri Lanka.|
||**Tax simplification and discounts for microenterprises**appeared to have positive employment effects in<br>Brazil and Mexico, although the quality of the evidence was weaker.<sup>.</sup>|
|**Electricity**|**Electricity access**(assessed in terms of quality and quantity) has a clear impact on firm productivity and<br>growth. A study in Ghana and a model India both showed positive employment and earnings effects<br>from access to regular electricity. In Ghana, blackouts disproportionately affected employment in<br>smaller firms.|
|**Minimum**|In South Africa, the introduction of a**minimum wage**created some changes in employment patterns,<br>reducing employment in agriculture and low‐paid domestic labor, but employment effects in other<br>sectors were limited.|
|<br>**wage,**<br>**subsidies, and**<br>**public works**|**Wage subsidies**showed no employment effects beyond the subsidy period in Jordan, South Africa, and<br>Sri Lanka. In Mexico, wage subsidies during a recession increased worker retention and accelerated firm<br>recovery, relative to control firms.|
||India's**publics works program**(MNREGA) has been successful in increasing employment and earnings<br>in rural areas, with only partial displacement. In Malawi, a similar program found no displacement.|

_Note:_ For details and references on programs evaluated, see Appendix A.

Credit programs that favor larger businesses tend to have better results, for several reasons. First, larger businesses are much more likely to survive and be profitable (Page and Söderbom, 2012).

> 13 See Ayyagari et al., (2016).

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