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Access to capital in rural Thailand: An estimated model of formal vs. informal credit

  • Giné, Xavier

This paper analyzes the mechanism underlying access to credit, focusing on two important aspects of rural credit markets. First, moneylenders and other informal lenders coexist with formal lending institutions such as government or commercial banks, and, more recently, micro-lending institutions. Second, potential borrowers presumably face sizable transaction costs in obtaining external credit. We develop and estimate a model based on limited enforcement and transaction costs that provides a unified view of these facts. Based on data from Thailand, the results show that the limited ability of banks to enforce contracts, more than transaction costs, is crucial in understanding the observed diversity of lenders.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 96 (2011)
Issue (Month): 1 (September)
Pages: 16-29

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Handle: RePEc:eee:deveco:v:96:y:2011:i:1:p:16-29
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