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The Impact of Credit on Village Economies

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  • Joseph P. Kaboski
  • Robert M. Townsend

Abstract

This paper evaluates the short- and longer term impact of Thailand's "Million Baht Village Fund" program, among the largest scale government microfinance iniatives in the world, using pre- and post-program panel data and quasi-experimental cross-village variation in credit per household. We find that the village funds have increased total short-term credit, consumption, agricultural investment, and income growth (from business and labor), but decreased overall asset growth. We also find a positive impact on wages, an important general equilibrium effect. The findings are broadly consistent qualitatively with models of credit-constrained household behavior and models of intermediation and growth. (JEL D14, G21, O12, O16, O18)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Applied Economics.

Volume (Year): 4 (2012)
Issue (Month): 2 (April)
Pages: 98-133

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Handle: RePEc:aea:aejapp:v:4:y:2012:i:2:p:98-133

Note: DOI: 10.1257/app.4.2.98
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References

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  1. Burgess, Robin & Pande, Rohini, 2004. "Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4211, C.E.P.R. Discussion Papers.
  2. Townsend, Robert M, 1995. "Financial Systems in Northern Thai Villages," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(4), pages 1011-46, November.
  3. Braverman, Avishay & Stiglitz, Joseph E., 1986. "Landlords, tenants and technological innovations," Journal of Development Economics, Elsevier, Elsevier, vol. 23(2), pages 313-332, October.
  4. Coleman, Brett E., 1999. "The impact of group lending in Northeast Thailand," Journal of Development Economics, Elsevier, Elsevier, vol. 60(1), pages 105-141, October.
  5. Chikako Yamauchi, 2008. "Heterogeneity in the Returns to Investment in Poor Villages," CEPR Discussion Papers, Centre for Economic Policy Research, Research School of Economics, Australian National University 582, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  6. Karlan, Dean S. & Zinman, Jonathan, 2007. "Expanding Credit Access: Using Randomized Supply Decisions To Estimate the Impacts," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6180, C.E.P.R. Discussion Papers.
  7. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(2), pages 274-98, April.
  8. John S. Felkner & Robert M. Townsend, 2011. "The Geographic Concentration of Enterprise in Developing Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 2005-2061.
  9. Jeong, Hyeok & Townsend, Robert M., 2008. "Growth And Inequality: Model Evaluation Based On An Estimation-Calibration Strategy," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 12(S2), pages 231-284, September.
  10. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to capital in microenterprises : evidence from a field experiment," Policy Research Working Paper Series 4230, The World Bank.
  11. Scott Fulford, 2010. "The effects of financial development in the short and long run," Boston College Working Papers in Economics, Boston College Department of Economics 741, Boston College Department of Economics, revised 31 May 2011.
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Cited by:
  1. Robert M. Townsend & Joseph P. Kaboski, 2009. "A Structural Evaluation of a Large-Scale Quasi-Experimental Microfinance Initiative," 2009 Meeting Papers, Society for Economic Dynamics 717, Society for Economic Dynamics.
  2. Daniel Mueller, 2013. "A General Equilibrium Analysis of Inflation and Microfinance in Developing Countries," Working papers, Faculty of Business and Economics - University of Basel 2013/06, Faculty of Business and Economics - University of Basel.
  3. Jonathan Zinman & Dean Karlan, 2009. "Expanding Microenterprise Credit Access: Using Randomized Supply Decisions to Estimate the Impacts in Manila," Working Papers, Economic Growth Center, Yale University 976, Economic Growth Center, Yale University.
  4. Michael Christian Lehman, 2014. "Long-Run Effects Of Conditional Cash Transfers," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Gra 223, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  5. Martijn Boermans & Daan Willebrands, 2012. "Financial constraints, risk taking and firm performance: Recent evidence from microfinance clients in Tanzania," DNB Working Papers, Netherlands Central Bank, Research Department 358, Netherlands Central Bank, Research Department.
  6. Scott Fulford, 2010. "The effects of financial development in the short and long run," Boston College Working Papers in Economics, Boston College Department of Economics 741, Boston College Department of Economics, revised 31 May 2011.
  7. World Bank, 2011. "Measuring Changes in Client Lives through Microfinance : Contributions of Different Approaches," World Bank Other Operational Studies 9452, The World Bank.
  8. Alessandro Tarozzi & Jaikishan Desai & Kristin Johnson, 2013. "On the impact of microcredit: Evidence from a randomized intervention in rural Ethiopia," Economics Working Papers 1407, Department of Economics and Business, Universitat Pompeu Fabra.
  9. Menkhoff, Lukas & Rungruxsirivorn, Ornsiri, 2011. "Do Village Funds Improve Access to Finance? Evidence from Thailand," World Development, Elsevier, Elsevier, vol. 39(1), pages 110-122, January.
  10. Esteban Puentes, 2011. "Use of Financial Instruments In Rural Thailand," Working Papers, University of Chile, Department of Economics wp344, University of Chile, Department of Economics.
  11. Augsburg, B. & Haas, R. de & Harmgart, H. & Meghir, C., 2013. "Microfinance and Poverty Alleviation," Discussion Paper, Tilburg University, Center for Economic Research 2013-075, Tilburg University, Center for Economic Research.
  12. Fulford, Scott L., 2013. "The effects of financial development in the short and long run: Theory and evidence from India," Journal of Development Economics, Elsevier, Elsevier, vol. 104(C), pages 56-72.
  13. Ruiz, Claudia, 2013. "From pawn shops to banks : the impact of formal credit on informal households," Policy Research Working Paper Series 6634, The World Bank.
  14. Boonperm, Jirawan & Haughton, Jonathan & Khandker, Shahidur R. & Rukumnuaykit, Pungpond, 2012. "Appraising the Thailand village fund," Policy Research Working Paper Series 5998, The World Bank.

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