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Journal of Microfinance / ESR Review

Abstract

Macroeconomic instability is largely detrimental to microenterprises. An unstable economic environment generates inflation and thus hits small business and the poor more severely than the more formal, wealthier segments of the population. Stabilization policies, which eliminate these disadvantages of instability, can help microenterprise. While healthy macroeconomic factors can positively influence the informal economy, the so-called “informal sector” can strengthen the macroeconomy. Given proper underlying conditions, microenterprise may prove as an engine of growth for an entire economy, and not just a small subsector of only marginal macroeconomic importance. This article discusses the effects of these macro-micro links with a special focus on IMF-style macroeconomic stabilization policy. It argues that macroeconomic instability imposes high costs on microentrepreneurs. Therefore--contrary to popular belief in the development community--macroeconomic stabilization can ultimately be very beneficial to microentrepreneurs, although it can be costly in the short run.

Section

Articles

Journal Title

Journal of Microfinance

Issue and Volume

2-1

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