The impact of small loan programmes on employment for micro and small enterprises: evidence from a province in Iran

Abstract

Governments have developed small loan programmes with a reduced interest rate to decrease unemployment in Iran. Using longitudinal, firm-level data from 2005 to 2010 in Iran, this study examines the effect of one Iranian province’s loan programme on employment based on two different methods of evaluating causal effects. The first method applies a difference-in-difference fixed effects matching estimator to estimate the employment effect of the programme. The second method applies the generalized propensity score to estimate the impact of the amount of a loan on employment. The results from the first method suggest that the loan programme has a positive and significant effect on the employment of treated firms. The results from the second method suggest that the estimated employment effects increase with the amount of the loan, whereas there is a decrease in the marginal effects of an additional amount of loan.