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Kinship and Financial Networks, Formal Financial Access, and Risk Reduction

  • Cynthia Kinnan
  • Robert Townsend

Kinship networks are beneficial for smoothing consumption and investment, but the channels are not well understood. We study the financing devices used for consumption and investment by Thai households. Households that are connected to banks achieve significantly better consumption smoothing than unconnected households; indirect connections via inter-household borrowing are as effective as direct borrowing. Investment appears to be facilitated by kinship: households with kin in the village display reduced sensitivity of investment to income, while connections to banks do not significantly reduce sensitivity. Kin may act as "implicit collateral," permitting borrowing that would violate repayment constraints in its absence.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.3.289
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 3 (May)
Pages: 289-93

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:3:p:289-93
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  1. Dean Karlan & Markus Mobius & Tanya Rosenblat & Adam Szeidl, 2009. "Trust and Social Collateral," The Quarterly Journal of Economics, MIT Press, vol. 124(3), pages 1307-1361, August.
  2. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-91, May.
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