Impact of Public Works on Household Occupational Choice

Evidence from NREGS in India

by Sinduja Srinivasan

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I analyze the impact of India's public employment generation program (NREGS) on entrepreneurship. One of the main barriers to entrepreneurship in India is a lack of access to capital. My hypothesis is that NREGS allows liquidity constrained individuals to accumulate savings, enabling subsequent investment in a risky, but more profitable, venture, and ideally, permanent graduation from poverty. Taking advantage of the quasi-experimental nature of the program, I use a nationally representative data set to estimate the impact of NREGS on selection into entrepreneurship. I find that rates of non-agricultural entrepreneurship increase by 3 percentage points in NREGS districts (increasing rates from 15% to 18%), compared to areas that did not receive the program. This result is robust to various specifications, including two falsification tests. The results suggest that by acting as a source of credit, NREGS impacts household occupational choice, contributing to increased income, and ultimately promoting current and future family welfare.

This paper was made possible by the RAND Center for the Study of Aging and the RAND Population Research Center.

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