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Start-up capital for youth: Assessing the potential of small business grants and vocational training in Kenya

 

Innovations for Poverty Action

Principal Investigator: Isaac Mbiti

 

Unemployment among young people is one of the most pressing social and economic problems facing less developed countries today.  Data from the 2005 Kenya Integrated Household Budget Survey found that approximately 21% of youths are unemployed, and a further 25% are neither in school nor working.  While the traditional academic schooling track offers large labor market returns for some youth, it is ill-suited to meet the needs of the large proportion of youth who are likely to drop out of school or who fail to transition to secondary school. Vocational training is a promising avenue for easing the school-to-work transition and boosting human capital for those not on the traditional academic schooling track, and as such has recently been touted by policymakers and governments. However, vocational training alone may not be enough to secure work for these individuals or dramatically improve their incomes. A recent survey of youth engaged in such training programs in western Kenya finds that almost 90% planned to start their own business after the completion of their studies, yet 78% anticipated that lack of capital would be a barrier to doing so.

The proposed project, Start-up Capital for Youth (SCY), will compare and contrast the relative efficacy of providing vocational training and small business start-up grants in Kenya. SCY will build on an earlier randomized evaluation of a vocational training voucher program in Kenya that included nearly 2,200 youth. In the previous program, a random half of program participants were awarded a voucher that covered the cost of vocational training. SCY will support the analysis of the near-term impacts of vocational training, including an evaluation of the differential returns between private and public training and the impacts of training in the informal sector. Furthermore, this project will support an additional intervention which will randomly select half of the voucher winners and half of the non-winners to receive an unconditional cash grant that is sufficient to purchase toolkits or provide seed capital for their entrepreneurial ventures.

The randomized cross-cutting design of this project will allow us to simultaneously estimate the impacts of vocational training, start-up grants, and the combination of both interventions. The use of randomization in treatment assignment will circumvent concerns about selection bias and confounding factors. Furthermore, detailed longitudinal data (the Kenya Life Panel Survey) covering nearly 15 years is available on all program participants, which will enable the exploration of heterogeneous treatment effects on different sub-populations in the sample. This panel data will also allow us to closely examine the dynamics and patterns of youth employment outcomes. In addition to providing rigorous evidence on the near-term and medium to long term returns to vocational training for African youth, a key contribution of this project will be to provide some of the first experimental evidence on the complementarities between vocational education and financial capital in Africa, by combining randomized interventions with high-quality longitudinal data.
 

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