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Are poor people credit-constrained or myopic? Evidence from a South African panel

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  • Berg, Erlend

Abstract

Credit constraints are an almost ubiquitous assumption in development economics. Yet direct evidence for credit constraints is limited, and many observations consistent with credit constraints are equally compatible with myopic (non-forward-looking) consumption or precautionary saving. Using household panel data and a source of widely anticipated income in South Africa, this paper tests and rejects the standard consumption model with perfect capital markets. Then, myopic consumption and precautionary saving are tested as alternative explanations for the observed jumps in expenditure. The standard model with credit constraints cannot be rejected in favour of myopic consumption or precautionary saving.

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  • Berg, Erlend, 2013. "Are poor people credit-constrained or myopic? Evidence from a South African panel," Journal of Development Economics, Elsevier, vol. 101(C), pages 195-205.
  • Handle: RePEc:eee:deveco:v:101:y:2013:i:c:p:195-205
    DOI: 10.1016/j.jdeveco.2012.10.002
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    References listed on IDEAS

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    Cited by:

    1. Flatø, Martin & Muttarak, Raya & Pelser, André, 2017. "Women, Weather, and Woes: The Triangular Dynamics of Female-Headed Households, Economic Vulnerability, and Climate Variability in South Africa," World Development, Elsevier, vol. 90(C), pages 41-62.
    2. Dillon, Brian & Barrett, Christopher B., 2017. "Agricultural factor markets in Sub-Saharan Africa: An updated view with formal tests for market failure," Food Policy, Elsevier, vol. 67(C), pages 64-77.
    3. Dillon Brian, 2016. "Working Paper 243 - Selling crops early to pay for school: A large-scale natural experiment in Malawi," Working Paper Series 2351, African Development Bank.
    4. Leandro De Magalhães & Dongya Koh & Raül Santaeulàlia-Llopis, 2016. "Consumption and Expenditure in Sub-Saharan Africa," Bristol Economics Discussion Papers 16/677, Department of Economics, University of Bristol, UK, revised 07 Oct 2016.
    5. Roxana Gutiérrez-Romero, 2017. "How does inequality affect long-run growth?," Working Papers 84, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    6. Pfutze,Tobias & Rodriguez Castelan,Carlos, 2015. "Can a small social pension promote labor force participation ? evidence from the Colombia Mayor program," Policy Research Working Paper Series 7516, The World Bank.
    7. Roxana Gutiérrez & Luciana Méndez, 2017. "Does inequality foster or hinder the growth of entrepreneurship in the long-run?," Documentos de Trabajo (working papers) 17-10, Instituto de Economía - IECON.
    8. Bruno Martorano & Sudhanshu Handa & Carolyn Halpern & Harsha Thirumurthy, 2014. "Subjective Well-being, Risk Perceptions and Time Discounting: Evidence from a large-scale cash transfer programme," Papers inwopa717, Innocenti Working Papers.
    9. Leandro Magalhaes & Dongya Koh & Raül Santaeulàlia-Llopis, 2016. "The Costs of Consumption Smoothing: Less Schooling and Less Nutrition," Working Papers 939, Barcelona Graduate School of Economics.
    10. Roxana Gutierrez-Romero & Luciana Méndez Errico, 2015. "The Long-Term Impact of Inequality on Entrepreneurship and Job Creation," Working Papers wpdea1501, Department of Applied Economics at Universitat Autonoma of Barcelona.
    11. Rosangela Bando & Claudia Uribe, 2016. "Experimental Evidence on Credit Constraints," IDB Publications (Working Papers) 7491, Inter-American Development Bank.

    More about this item

    Keywords

    Credit constraints; Household consumption;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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