Moving to profitability

Kampala's street vendors and boda boda drivers own little that ties them to one spot. The fruit seller has a wheelbarrow. Yet a vendor in a parish near the top of the city's profit ladder earns more than three times as much as a similar vendor near the bottom. Two-thirds of them believe they could earn more somewhere else. So why do they stay put?

Carolyn Pelnik (World Bank) asked them, and in this episode of Conversations on Transformation, she tells Tim Phillips what she discovered. 

Most said they did not have the cash to move. So she ran an experiment with 2,883 entrepreneurs. Some were paid a subsidy to work at least three kilometres from their usual pitch. Others got the same money with no conditions. Some got a card naming parishes where businesses like theirs earned more. Only those who got both cash and information earned more, and while the payments lasted their profits rose by 45%. But, when the payments stopped, most went back to their lives as before. Why?

Based on research presented at STEG's sixth Annual Conference in Nairobi in January 2026. 

The research behind this episode

Pelnik, Carolyn. 2025. "Moving to Profitability? Alleviating Constraints on Microentrepreneur Location." Working paper, July 2025. An earlier version was published as a PEDL Working Paper in November 2024. Presented at the STEG Annual Conference, Nairobi, January 2026.

To cite this episode

Phillips, Tim, and Carolyn Pelnik. 2026. "Moving to profitability." Conversations on Transformation (podcast).

About the guest

Carolyn Pelnik is a research economist in the Prosperity Research Program of the World Bank's Development Research Group. She received her PhD in Economics and Public Policy from Tufts University in 2025, and holds a BS and an MPP from the University of Virginia. Her research spans small and micro enterprises, market access, access to financial services, poverty traps, land markets, and urban economics in low- and middle-income countries. An earlier version of the paper discussed in this episode won the Northeastern Universities Development Consortium (NEUDC) Distinguished Paper Award in 2024. The views she expresses in this episode are her own, and not necessarily those of the World Bank.

Research cited in this episode

Spatial equilibrium and compensating differentials set the benchmark Pelnik tests against. In a world without frictions, entrepreneurs crowd into the most profitable places until competition erodes the gap. Where a gap persists, one classic explanation, developed by Sherwin Rosen (1979) and Jennifer Roback (1982), is that the extra money compensates for something unpleasant about the place, such as congestion or pollution. If Pelnik's payments only compensated entrepreneurs for an unpleasant move, they would have returned home the day the money stopped. A week later, most had not.

Conditional and unconditional cash transfers let the experiment separate two stories. The conditional transfer paid only entrepreneurs who moved at least three kilometres; the unconditional transfer paid the same amount with no strings attached. If entrepreneurs want to move but cannot afford to, both should produce similar moves. If they would rather not move at all, only the conditional payment should. For the entrepreneurs who responded to the information, the two transfers worked in almost exactly the same way.

The coefficient of variation is the standard deviation of a set of values divided by their mean. It lets researchers compare how risky places are when their average profits differ. Pelnik finds that it rises in Kampala's more profitable parishes; the best places to trade are also the least predictable.

Testing for consumption smoothing follows Robert Townsend's 1994 paper "Risk and Insurance in Village India," published in Econometrica. If a household is well insured, its spending should not rise and fall with its own day-to-day income. Pelnik finds that either form of cash weakens the link between an entrepreneur's daily profit and their spending, consistent with the payments acting as a floor that made a risky move bearable.

Selection into credit markets is the parallel Pelnik draws for policy. Lori Beaman, Dean Karlan, Bram Thuysbaert, and Christopher Udry, in "Selection into Credit Markets: Evidence from Agriculture in Mali" (Econometrica, 2023), show that the farmers who choose to borrow are not a random draw, and that who takes up a loan shapes what a lending programme achieves. In Kampala, adding information changed who took up the moving subsidy. Pelnik suggests that bundling information with credit might similarly steer loans to the entrepreneurs who stand to gain most.

More Conversations on Transformation episodes

The returns to migration. Marieke Kleemans asks why, if moving to a city pays so well, more people do not do it, the same puzzle Pelnik investigates on the scale of a single city's streets.

A Microeconomic Perspective on Misallocation. Eric Verhoogen explains why the most productive firms in low-income countries often stay small, a different view of the frictions that stop resources going where they would earn the most.

Further reading

From Street Markets to Shopping Malls: The Modern Service Multiplier, a STEG working paper by Matthew Schwartzman, argues that as supermarkets and restaurants replace street vendors and food hawkers, rising incomes and rising demand for modern services reinforce each other, and estimates that this effect amplified the growth of modern services in Brazil by 25% between 2000 and 2010.

How Important are Investment Indivisibilities for Development? Experimental Evidence from Uganda, a STEG working paper by Joseph Kaboski, Molly Lipscomb, Carolyn Pelnik, and Virgiliu Midrigan, offers Ugandans a choice between a safe small cash grant and a risky large one, and finds that 27% take the gamble, a companion piece on how liquidity and risk shape the investment decisions of the poor.