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Mobile Money, Trade Credit, and Economic Development: Theory and Evidence

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  • Beck, Thorsten
  • Uras, Burak
  • Pamuk, Haki
  • Ramrattan, Ravindra

Abstract

Using a novel enterprise survey from Kenya (FinAccess Business), we document a strong positive association between the use of mobile money as a method to pay suppliers and access to trade credit. We develop a dynamic general equilibrium model with heterogeneous entrepreneurs, imperfect credit markets and the risk of theft to account for this empirical pattern. Mobile money dominates fiat money as a medium of exchange in its capacity to avoid theft, but comes with higher transaction costs. The interaction between risk of theft and limited access to trade credit generates demand for mobile money as a payment method with suppliers and the use of mobile money in turn raises the value of a credit relationship and hence the willingness to apply for trade credit. Calibrating the stationary equilibrium to match a set of moments that we observe in Kenyan FinAcces enterprise survey data and quantifying the importance of the endogenous interactions between mobile money and trade credit on entrepreneurial performance and macroeconomic development, we find that the availability of the mobile money technology increases GDP by 0.33-0.47%.

Suggested Citation

  • Beck, Thorsten & Uras, Burak & Pamuk, Haki & Ramrattan, Ravindra, 2015. "Mobile Money, Trade Credit, and Economic Development: Theory and Evidence," CEPR Discussion Papers 10848, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10848
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    2. Samuel Orekoya, Phd, . "Impact Of Mobile Money On Prices And Output In Nigeria," Journal of Economic and Sustainable Growth 1, Office Of The Chief Economist, Development Bank of Nigeria.
    3. Sébastien Galanti & Ҫiğdem Yilmaz Ӧzsoy, 2022. "Digital finance, development, and climate change," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Statistics for Sustainable Finance, volume 56, Bank for International Settlements.
    4. Irving Fisher Committee, 2022. "Statistics for Sustainable Finance," IFC Bulletins, Bank for International Settlements, number 56, July.
    5. Asif Islam & Silvia Muzi & Jorge Luis Rodriguez Meza, 2018. "Does mobile money use increase firms’ investment? Evidence from Enterprise Surveys in Kenya, Uganda, and Tanzania," Small Business Economics, Springer, vol. 51(3), pages 687-708, October.
    6. Ahmad Hassan Ahmad & Christopher Green & Fei Jiang, 2020. "Mobile Money, Financial Inclusion And Development: A Review With Reference To African Experience," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 753-792, September.

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    More about this item

    Keywords

    Mobile money; Trade credit; Small business finance; Kenya;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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