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Access to capital in rural Thailand: An estimated model of formal vs. informal credit

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  • Giné, Xavier

Abstract

This paper analyzes the mechanism underlying access to credit, focusing on two important aspects of rural credit markets. First, moneylenders and other informal lenders coexist with formal lending institutions such as government or commercial banks, and, more recently, micro-lending institutions. Second, potential borrowers presumably face sizable transaction costs in obtaining external credit. We develop and estimate a model based on limited enforcement and transaction costs that provides a unified view of these facts. Based on data from Thailand, the results show that the limited ability of banks to enforce contracts, more than transaction costs, is crucial in understanding the observed diversity of lenders.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 96 (2011)
Issue (Month): 1 (September)
Pages: 16-29

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Handle: RePEc:eee:deveco:v:96:y:2011:i:1:p:16-29

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Web page: http://www.elsevier.com/locate/devec

Related research

Keywords: Credit constraints Transaction costs Maximum likelihood;

References

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Citations

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Cited by:
  1. Alexander Karaivanov & Anke Kessler, 2013. "A Friend in Need is a Friend Indeed: Theory and Evidence on the (Dis)Advantages of Informal Loans," Discussion Papers dp13-03, Department of Economics, Simon Fraser University, revised Apr 2013.
  2. Lee, Samuel & Persson, Petra, 2012. "Financing from Family and Friends," Working Paper Series 933, Research Institute of Industrial Economics.
  3. Borner, Jan & Shively, Gerald E. & Wunder, Sven & Wyman, Miriam, 2012. "How do rural households respond to economic shocks? Insights from hierarchical analysis using global data," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126143, International Association of Agricultural Economists.

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