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Kinship and Financial Networks, Formal Financial Access, and Risk Reduction

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  • Cynthia Kinnan
  • Robert Townsend

Abstract

Kinship networks are beneficial for smoothing consumption and investment, but the channels are not well understood. We study the financing devices used for consumption and investment by Thai households. Households that are connected to banks achieve significantly better consumption smoothing than unconnected households; indirect connections via inter-household borrowing are as effective as direct borrowing. Investment appears to be facilitated by kinship: households with kin in the village display reduced sensitivity of investment to income, while connections to banks do not significantly reduce sensitivity. Kin may act as "implicit collateral," permitting borrowing that would violate repayment constraints in its absence.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.3.289
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 3 (May)
Pages: 289-93

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:3:p:289-93

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  1. Markus Mobius & Adam Szeidl, 2007. "Trust and Social Collateral," NBER Working Papers 13126, National Bureau of Economic Research, Inc.
  2. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-91, May.
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Cited by:
  1. Alexander Karaivanov & Robert M. Townsend, 2014. "Dynamic Financial Constraints: Distinguishing Mechanism Design From Exogenously Incomplete Regimes," Econometrica, Econometric Society, vol. 82(3), pages 887-959, 05.
  2. Felipe Kast & Dina Pomeranz, 2014. "Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile," NBER Working Papers 20239, National Bureau of Economic Research, Inc.
  3. Mastrobuoni, Giovanni, 2014. "The Value of Connections: Evidence from the Italian-American Mafia," IZA Discussion Papers 7925, Institute for the Study of Labor (IZA).

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