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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. 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.
  2. Dean Karlan & Jonathan Zinman, 2006. "Expanding credit access: Using randomized supply decisions to estimate the impacts," Natural Field Experiments 00281, The Field Experiments Website.
  3. Robin Burgess & Rohini Pande, 2003. "Do rural banks matter? evidence from the Indian social banking experiment," LSE Research Online Documents on Economics 2244, London School of Economics and Political Science, LSE Library.
  4. 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.
  5. 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.
  6. Suresh de Mel & David McKenzie & Christopher Woodruff, 2008. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1329-1372, November.
  7. Braverman, Avishay & Stiglitz, Joseph E., 1986. "Landlords, tenants and technological innovations," Journal of Development Economics, Elsevier, vol. 23(2), pages 313-332, October.
  8. Coleman, Brett E., 1999. "The impact of group lending in Northeast Thailand," Journal of Development Economics, Elsevier, vol. 60(1), pages 105-141, October.
  9. 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.
  10. 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.
  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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