Advanced Search
MyIDEAS: Login to save this paper or follow this series

Precautionary Saving under LiquidityConstraints: Evidence from Rural Pakistan

Contents:

Author Info

  • Jeong-Joon Lee

    (Department of Economics, Towson University)

  • Yasuyuki Sawada

    (Faculty of Economics, University of Tokyo)

Abstract

This paper investigates precautionary saving under liquidity constraints in Pakistan using household panel data. In particular, while we estimates Kimball's (1990) prudence parameter, we deviate from Dynan's (1993) framework by explicitly considering liquidity constraints, as in Zeldes (1989). By doing so,we attempt to diffeerentiate the standard precautionary saving caused by uncertainty from the oneduetoliquidity constraints. Furthermore, endogenous liquidity constraints are considered to resolve issues of selection biases. In this study, we document substantial evidence of the presence of precautionary saving in Pakistan. More specifically, the estimated prudence is significantly higher for liquidity-constrainedhouse-holds as compared with unconstrained ones. The results support the emerging view that facilitating saving may often be more important than finding better ways of lending to the poor.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2005/2005cf377.pdf
Download Restriction: no

Bibliographic Info

Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-377.

as in new window
Length: 31 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:tky:fseres:2005cf377

Contact details of provider:
Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033
Phone: +81-3-5841-5644
Fax: +81-3-5841-8294
Email:
Web page: http://www.cirje.e.u-tokyo.ac.jp/index.html
More information through EDIRC

Related research

Keywords:

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Martin Browning & Annamaria Lusardi, 1995. "Household Saving: Micro Theories and Micro Facts," Department of Economics Working Papers 1995-02, McMaster University.
  2. Masao Ogaki & Qiang Zhang, 2000. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometric Society World Congress 2000 Contributed Papers 1588, Econometric Society.
  3. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
  4. Christopher D Carroll & Miles S Kimball, 2001. "Liquidity Constraints and Precautionary Saving," Economics Working Paper Archive 455, The Johns Hopkins University,Department of Economics.
  5. Robert M. Townsend, . "Risk and Insurance in Village India," University of Chicago - Population Research Center, Chicago - Population Research Center 91-3a, Chicago - Population Research Center.
  6. Alderman, Harold, 1996. "Saving and economic shocks in rural Pakistan," Journal of Development Economics, Elsevier, vol. 51(2), pages 343-365, December.
  7. Robert M. Townsend, 1995. "Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 83-102, Summer.
  8. Fafchamps, Marcel & Udry, Christopher & Czukas, Katherine, 1998. "Drought and saving in West Africa: are livestock a buffer stock?," Journal of Development Economics, Elsevier, vol. 55(2), pages 273-305, April.
  9. Lee, Jeong-Joon & Sawada, Yasuyuki, 2007. "The degree of precautionary saving: A reexamination," Economics Letters, Elsevier, vol. 96(2), pages 196-201, August.
  10. Banks, James & Blundell, Richard & Brugiavini, Agar, 2001. "Risk Pooling, Precautionary Saving and Consumption Growth," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 68(4), pages 757-79, October.
  11. Morduch, J., 1995. "Income Smoothing and Consumption Smoothing," Papers, Harvard - Institute for International Development 512, Harvard - Institute for International Development.
  12. Orazio P. Attanasio & Hamish Low, 2000. "Estimating Euler Equations," NBER Technical Working Papers 0253, National Bureau of Economic Research, Inc.
  13. Carroll Christopher Dixon, 2001. "Death to the Log-Linearized Consumption Euler Equation! (And Very Poor Health to the Second-Order Approximation)," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 1(1), pages 1-38, April.
  14. Christopher D. Carroll & Miles S. Kimball, 1995. "On the concavity of the consumption function," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 95-10, Board of Governors of the Federal Reserve System (U.S.).
  15. T. Jappelli & J-S Pischke & N.S. Souleles, 1995. "Testing for Liquidity Constraints in Euler Equations with Complementary Data Sources," Working papers 95-19, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. Stephen P. Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 16-88, Wharton School Rodney L. White Center for Financial Research.
  17. Philip Merrigan & Michel Normandin, 1994. "Precautionary Saving Motives: An Assessment from U.K. Time Series of Cross-Sections," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 29, CREFE, Université du Québec à Montréal.
  18. Dubois, Pierre & Jullien, Bruno & Magnac, Thierry, 2007. "Formal and Informal Risk Sharing in LDCs: Theory and Empirical Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6060, C.E.P.R. Discussion Papers.
  19. Makoto Nirei, 2006. "Quantifying Borrowing Constraints and Precautionary Savings," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 353-363, April.
  20. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2001. "The Empirical Importance of Precautionary Saving," NBER Working Papers 8107, National Bureau of Economic Research, Inc.
  21. Garcia, R. & Lusardi, A. & Ng, S., 1995. "Excess Sensitivity and Asymmetries in Consumption: An Empirical Investigation," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9511, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  22. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, Econometric Society, vol. 58(1), pages 53-73, January.
  23. Chen Yuyu & Zhou Li-An, 2003. "How Prudent are Community Representative Consumers?," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 3(1), pages 1-20, March.
  24. Alderman, Harold & Garcia, Marito, 1993. "Poverty, household food security, and nutrition in rural Pakistan:," Research reports 96, International Food Policy Research Institute (IFPRI).
  25. Jonathan A. Parker & Bruce Preston, 2005. "Precautionary Saving and Consumption Fluctuations," American Economic Review, American Economic Association, vol. 95(4), pages 1119-1143, September.
  26. Eswaran, Mukesh & Kotwal, Ashok, 1989. "Credit as insurance in agrarian economies," Journal of Development Economics, Elsevier, vol. 31(1), pages 37-53, July.
  27. Timothy Besley, 1995. "Nonmarket Institutions for Credit and Risk Sharing in Low-Income Countries," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 115-127, Summer.
  28. Udry, Christopher, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(3), pages 495-526, July.
  29. Rosenzweig, Mark R & Wolpin, Kenneth I, 1993. "Credit Market Constraints, Consumption Smoothing, and the Accumulation of Durable Production Assets in Low-Income Countries: Investment in Bullocks in India," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(2), pages 223-44, April.
  30. Xu, Xiaonian, 1995. "Precautionary Savings under Liquidity Constraints: A Decomposition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 675-90, August.
  31. V A Hajivassiliou & Y Ioannides, 1995. "Unemployment and Liquidity Constraints," CEP Discussion Papers dp0243, Centre for Economic Performance, LSE.
  32. Sydney Ludvigson & Christina H. Paxson, 1999. "Approximation Bias in Linearized Euler Equations," NBER Technical Working Papers 0236, National Bureau of Economic Research, Inc.
  33. Dirk Krueger & Fabrizio Perri, 2006. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory -super-1," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 163-193.
  34. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(6), pages 1104-13, December.
  35. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(1), pages 219-34, February.
  36. Pender, John L., 1996. "Discount rates and credit markets: Theory and evidence from rural india," Journal of Development Economics, Elsevier, vol. 50(2), pages 257-296, August.
  37. Karen E. Dynan, 1993. "How prudent are consumers?," Working Paper Series / Economic Activity Section 135, Board of Governors of the Federal Reserve System (U.S.).
  38. repec:fth:pennfi:69 is not listed on IDEAS
  39. MR Rosenzweig, 2001. "Savings behaviour in low-income countries," Oxford Review of Economic Policy, Oxford University Press, vol. 17(1), pages 40-54, Spring.
  40. Anjini Kochar, 1999. "Smoothing Consumption by Smoothing Income: Hours-of-Work Responses to Idiosyncratic Agricultural Shocks in Rural India," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 50-61, February.
  41. Cox, Donald & Jimenez, Emmanuel, 1990. "Achieving Social Objectives through Private Transfers: A Review," World Bank Research Observer, World Bank Group, World Bank Group, vol. 5(2), pages 205-18, July.
  42. Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, Econometric Society, vol. 54(3), pages 679-85, May.
  43. Albert Park, 2006. "Risk and Household Grain Management in Developing Countries," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 116(514), pages 1088-1115, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Michler, Je ffrey D. & Balagtas, Joseph V., 2013. "The Determinants of Rice Storage: Evidence from Rice Farmers in Bangladesh," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C., Agricultural and Applied Economics Association 150267, Agricultural and Applied Economics Association.
  2. Montalbano, Pierluigi, 2011. "Trade Openness and Developing Countries' Vulnerability: Concepts, Misconceptions, and Directions for Research," World Development, Elsevier, vol. 39(9), pages 1489-1502, September.
  3. Kadjo, Didier & Ricker-Gilbert, Jacob & Alexander, Corinne E. & Tahirou, Abdoulaye, 2013. "Effects of Storage Losses and Grain Management Practices on Storage: Evidence from Maize Production in Benin," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C., Agricultural and Applied Economics Association 150522, Agricultural and Applied Economics Association.
  4. Alessandro Federici & Pierluigi Montalbano, 2012. "Macroeconomic volatility, consumption behaviour and welfare: A cross-country analysis," Working Paper Series 3612, Department of Economics, University of Sussex.
  5. Jin, Ling & Chen, Kevin Z. & Yu, Bingxin & Huang, Zuhui, 2011. "How prudent are rural households in developing transition economies:," IFPRI discussion papers 1127, International Food Policy Research Institute (IFPRI).
  6. Koen Rossel-Cambier, 2010. "Do Multiple Financial Services Enhance the Poverty Outreach of Microfinance Institutions?," Working Papers CEB, ULB -- Universite Libre de Bruxelles 10-058, ULB -- Universite Libre de Bruxelles.
  7. Carter, Michael R. & Lybbert, Travis J., 2012. "Consumption versus asset smoothing: testing the implications of poverty trap theory in Burkina Faso," Journal of Development Economics, Elsevier, vol. 99(2), pages 255-264.
  8. Paxton, Julia & Young, Lauren, 2011. "Liquidity Profiles of Poor Mexican Households," World Development, Elsevier, vol. 39(4), pages 600-610, April.
  9. M. Deidda, 2009. "Precautionary savings under liquidity constraints: evidence from Italy," Working Paper CRENoS 200918, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  10. Julia Paxton & Fan Zhuo, 2011. "Economic Shocks and Savings Behavior by the Rural Poor," Economics Bulletin, AccessEcon, vol. 31(4), pages 3286-3293.
  11. Ruiz, Claudia, 2013. "From pawn shops to banks : the impact of formal credit on informal households," Policy Research Working Paper Series 6634, The World Bank.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:tky:fseres:2005cf377. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CIRJE administrative office).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.