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The Macroeconomics of Microfinance

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  • Francisco J. Buera
  • Joseph P. Kaboski
  • Yongseok Shin

Abstract

We provide a quantitative evaluation of the aggregate and distributional impact of microfinance or credit programs targeted toward small businesses. We find that the redistributive impact of microfinance is stronger in general equilibrium than in partial equilibrium, but the impact on aggregate output and capital is smaller in general equilibrium. Aggregate total factor productivity (TFP) increases with microfinance in general equilibrium but decreases in partial equilibrium. When general equilibrium effects are accounted for, scaling up the microfinance program will have only a small impact on per-capita income, because the increase in TFP is counterbalanced by lower capital accumulation resulting from the redistribution of income from high-savers to low-savers. Nevertheless, the vast majority of the population will be positively affected by microfinance through the increase in equilibrium wages.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17905.

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Date of creation: Mar 2012
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Handle: RePEc:nbr:nberwo:17905

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  1. Erica Field & Rohini Pande, 2008. "Repayment Frequency and Default in Microfinance: Evidence From India," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 501-509, 04-05.
  2. Karlan, Dean & Gine, Xavier, 2009. "Group versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups," Working Papers 61, Yale University, Department of Economics.
  3. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," IZA Discussion Papers 2934, Institute for the Study of Labor (IZA).
  4. Andrés Erosa & Ana Hidalgo Cabrillana, 2008. "On Finance As A Theory Of Tfp, Cross-Industry Productivity Differences, And Economic Rents," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 437-473, 05.
  5. Townsend, Robert M, 1995. "Financial Systems in Northern Thai Villages," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1011-46, November.
  6. Paulson, Anna L. & Townsend, Robert, 2004. "Entrepreneurship and financial constraints in Thailand," Journal of Corporate Finance, Elsevier, vol. 10(2), pages 229-262, March.
  7. Marcel Fafchamps & David McKenzie & Simon Quinn & Christopher Woodruff, 2010. "Using PDA consistency checks to increase the precision of profits and sales measurement in panels," CSAE Working Paper Series 2010-19, Centre for the Study of African Economies, University of Oxford.
  8. Dean Karlan & Jonathan Zinman, 2007. "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts," Working Papers 108, Center for Global Development.
  9. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 319-347, April.
  10. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
  11. Francisco Buera, 2009. "A dynamic model of entrepreneurship with borrowing constraints: theory and evidence," Annals of Finance, Springer, vol. 5(3), pages 443-464, June.
  12. Quadrini, Vincenzo, 1999. "The Importance of Entrepreneurship for Wealth Concentration and Mobility," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(1), pages 1-19, March.
  13. Francisco J. Buera & Joseph Kaboski & Yongseok Shin, 2009. "Finance and Development: A Tale of Two Sectors," NBER Working Papers 14914, National Bureau of Economic Research, Inc.
  14. Attanasio, Orazio & Augsburg, Britta & De Haas, Ralph & Fitzsimons, Emla & Harmgart, Heike, 2011. "Group lending or individual lending? Evidence from a randomised field experiment in Mongolia," MPRA Paper 35439, University Library of Munich, Germany.
  15. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  16. Gine, Xavier & Townsend, Robert M., 2003. "Evaluation of financial liberalization : a general equilibrium model with constrained occupation choice," Policy Research Working Paper Series 3014, The World Bank.
  17. Mark M. Pitt & Shahidur R. Khandker, 1998. "The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 958-996, October.
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Cited by:
  1. Renuka Sane & Susan Thomas, 2013. "The real cost of credit constraints: Evidence from micro-finance," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2013-013, Indira Gandhi Institute of Development Research, Mumbai, India.
  2. Baldi, Guido & Sadovskis, Vairis & Šipilova, Viktorija, 2014. "Economic and Employment Effects of Microloans in a Transition Country," MPRA Paper 52736, University Library of Munich, Germany.
  3. Bandiera, Oriana & Burgess, Robin & Das, Narayan & Gulesci, Selim & Rasul, Imran & Sulaiman, Munshi, 2013. "Can Basic Entrepreneurship Transform the Economic Lives of the Poor?," IZA Discussion Papers 7386, Institute for the Study of Labor (IZA).

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