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Shocking Business Aspirations: Experimental Evidence from Small-scale Entrepreneurs in a Developing Economy

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Lack of growth aspirations can be an important psychological constraint to small-scale entrepreneurship in developing economies. We use a field experiment among urban retail entrepreneurs in Indonesia to provide an exogenous shock to their aspirations window. A randomly selected set of entrepreneurs are provided a handbook of key business practices implemented by successful local peers, complemented with two psychological and implementation nudges: a movie with business role models from the local area who demonstrate their path to success; and personalized business assistance to help entrepreneurs with individual implementation challenges. We show that business growth aspirations respond strongly to these interventions, measured up to eighteen months afterwards. In line with the theoretical literature, we find that the distance between the initial aspirations of the entrepreneurs and the business frontier is the key driver for the direction of the effects. Entrepreneurs with high business aspirations at baseline respond positively to the treatments and increase business aspirations, sales, and profits; while those with low initial aspirations respond negatively and decrease their business aspirations and performance. We find similar heterogeneity in complementary aspirations for children’s education and satisfaction with household finances. These results confirm that initial levels of aspirations are crucial in determining how entrepreneurs respond to exogenous aspirational shocks.
Original languageEnglish
Place of PublicationTilburg
PublisherTilburg University
Number of pages51
StatePublished - 30 Jun 2018

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