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The Impact of Credit on Village Economies

  • Joseph P. Kaboski
  • Robert M. Townsend

This paper evaluates the short- and longer term impact of Thailand's "Million Baht Village Fund" program, among the largest scale government microfinance iniatives in the world, using pre- and post-program panel data and quasi-experimental cross-village variation in credit per household. We find that the village funds have increased total short-term credit, consumption, agricultural investment, and income growth (from business and labor), but decreased overall asset growth. We also find a positive impact on wages, an important general equilibrium effect. The findings are broadly consistent qualitatively with models of credit-constrained household behavior and models of intermediation and growth. (JEL D14, G21, O12, O16, O18)

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Article provided by American Economic Association in its journal American Economic Journal: Applied Economics.

Volume (Year): 4 (2012)
Issue (Month): 2 (April)
Pages: 98-133

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Handle: RePEc:aea:aejapp:v:4:y:2012:i:2:p:98-133
Note: DOI: 10.1257/app.4.2.98
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  1. 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).
  2. Scott Fulford, 2010. "The effects of financial development in the short and long run," Boston College Working Papers in Economics 741, Boston College Department of Economics, revised 31 May 2011.
  3. Robin Burgess & Rohini Pande, 2005. "Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment," American Economic Review, American Economic Association, vol. 95(3), pages 780-795, June.
  4. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Coleman, Brett E., 1999. "The impact of group lending in Northeast Thailand," Journal of Development Economics, Elsevier, vol. 60(1), pages 105-141, October.
  6. Braverman, Avishay & Stiglitz, Joseph E., 1986. "Landlords, tenants and technological innovations," Journal of Development Economics, Elsevier, vol. 23(2), pages 313-332, October.
  7. John S. Felkner & Robert M. Townsend, 2011. "The Geographic Concentration of Enterprise in Developing Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 2005-2061.
  8. Karlan, Dean S. & Zinman, Jonathan, 2007. "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts," CEPR Discussion Papers 6407, C.E.P.R. Discussion Papers.
  9. Chikako Yamauchi, 2008. "Heterogeneity in the Returns to Investment in Poor Villages," CEPR Discussion Papers 582, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  10. Jeong, Hyeok & Townsend, Robert M., 2008. "Growth And Inequality: Model Evaluation Based On An Estimation-Calibration Strategy," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 231-284, September.
  11. Townsend, Robert M, 1995. "Financial Systems in Northern Thai Villages," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1011-46, November.
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