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Contestable Credit Markets and Household Welfare: Panel Data Evidence from Ethiopia

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  • Dereje Regasa
  • David Fielding
  • Helen Roberts

Abstract

This paper explores the impact of credit constraints on household welfare in Ethiopia. We use a three-wave panel dataset for rural and small-town households to estimate the effects of household borrowing constraints on two alternative indicators of household welfare: consumption expenditure and asset ownership. The presence of a constraint is treated as an endogenous regressor, using an instrumental variable based on Baumol’s theory of contestable markets. We find that credit constraints have a significantly negative effect on both outcomes. These results are robust to several alternative specifications of the model.

Suggested Citation

  • Dereje Regasa & David Fielding & Helen Roberts, 2021. "Contestable Credit Markets and Household Welfare: Panel Data Evidence from Ethiopia," Journal of Development Studies, Taylor & Francis Journals, vol. 57(3), pages 484-501, March.
    • Handle: RePEc:taf:jdevst:v:57:y:2021:i:3:p:484-501
    DOI: 10.1080/00220388.2020.1826447
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