Does the insurance effect of public and private transfers favor financial deepening? evidence from rural Nicaragua
AbstractThe literature suggests Conditional Cash Transfers (CCT) and remittances may protect poor households from income risk. We present a theoretical framework that explores how this ‘insurance’ effect can change households’ decision to apply for a loan via changes in credit demand and supply. Empirical evidence from poor rural households in Nicaragua shows CCTs did not affect loan requests while remittances increased them. The risk protection provided by remittances seems stronger, relative to CCTs, such that improvements on borrowers’ expected marginal returns to a loan or on creditworthiness more than offset decreasing returns to additional income. This suggests those transfers that best protect households from income risk favor financial deepening in the context of segmented markets.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 38339.
Date of creation: 13 Feb 2012
Date of revision:
Credit markets; migration; conditional cash transfers; Nicaragua;
Find related papers by JEL classification:
- F22 - International Economics - - International Factor Movements and International Business - - - International Migration
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
This paper has been announced in the following NEP Reports:
- NEP-AGR-2012-05-08 (Agricultural Economics)
- NEP-ALL-2012-05-08 (All new papers)
- NEP-IAS-2012-05-08 (Insurance Economics)
- NEP-MFD-2012-05-08 (Microfinance)
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