Social and Distributional Effects of Capital Grants for Small and Medium Enterprises on Employers and Employees: Evidence from Post-War Iraq

This project studies how economic recovery affects socially cohesive attitudes and how its effects extend through social and economic networks via indirect exposure. In societies emerging from conflict, the benefits of growth and development may be unevenly distributed, creating or exacerbating inequalities. We study this process through the lens of a high-value capital grant program for small- and medium-sized enterprises in post-conflict Iraq, where material competition and grievances are a source of social tensions. The program supports business growth and employment creation with large capital grants (averaging $16,000), and we measure effects on socially cohesive attitudes using surveys of business owners, their employees, and owners’ social ties and professional peers. A pre-existing employee-employer register allows us to measure effects on the social attitudes of workers and to detect changes in socially cohesive attitudes among workers expected to benefit and lose as a result of the turnover induced by the program.

Keywords: capital grants; small and medium enterprises; employer-employee linked data; labor turnover; social cohesion; distributional effects; indirect exposure; post-conflict Iraq.

JEL: D74, I32, I38, O12.