Firms in many developing countries cite macroeconomic instability and political uncertainty as major constraints to their growth. Economic theory suggests uncertainty can cause firms to delay investments until uncertainty is resolved. The study conducted a randomized experiment in post-revolution Egypt to measure the impact of insuring microenterprises against macroeconomic and political uncertainty.
Prior to the impact evaluation, the researchers conducted a market research survey of 320 microenterprises in Alexandria, Cairo, and Giza. The survey result shows that microenterprises would be interested in insurance against macroeconomic shocks. As part of the impact evaluation study, the researchers conducted a baseline survey before the launch of the insurance product and an endline survey several months after the deadline to purchase the insurance passed.
Demand for macroeconomic shock insurance was high: 36.7 percent of microentrepreneurs in the treatment group purchased insurance. However, purchasing insurance does not change the likelihood that a business takes a new loan, the size of the loan, or how they invest this loan. The study attributes this lack of effect to microenterprises largely investing in inventories and raw materials rather than irreversible investments like equipment. These results suggest that, contrary to what microenterprises progress profess, macroeconomic and political risk is not inhibiting the investment behavior. However, insurance may still be of value to them to help cope with shocks when they do occur.