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The impact of microcredit borrowing on household consumption in Bangladesh

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  • Elizabeth Schroeder

Abstract

The rapid expansion of microcredit in recent years renders knowledge of its impact on poverty critical. Unfortunately, empirical investigations have been limited by endogeneity issues, and randomized controlled trials suffer from a lack of power. This article suggests a strategy for handling the endogeneity of microcredit borrowing without specifying instrumental variables, allowing for estimation using observational data. The model is identified by an assumption on the conditional second moments of the errors and estimated semiparametrically. I find that an increase in the amount borrowed from the Grameen Bank and similar institutions in Bangladesh has a positive and significant effect on per-capita household consumption. The estimated elasticity is in the range of 0.18 to 0.21. These estimates indicate that microcredit may be more effective than previously thought.

Suggested Citation

  • Elizabeth Schroeder, 2020. "The impact of microcredit borrowing on household consumption in Bangladesh," Applied Economics, Taylor & Francis Journals, vol. 52(43), pages 4765-4779, September.
    • Handle: RePEc:taf:applec:v:52:y:2020:i:43:p:4765-4779
    DOI: 10.1080/00036846.2020.1743815
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    Cited by:

    1. Saniter, Nils, 2012. "Estimating Heterogeneous Returns to Education in Germany via Conditional Heteroskedasticity," IZA Discussion Papers 6813, Institute of Labor Economics (IZA).
    2. Emerson, Patrick M. & McGough, Bruce, 2010. "Are Microloans Bad for Growth?," IZA Discussion Papers 5249, Institute of Labor Economics (IZA).
    3. Nicholas Sabin, 2023. "Choosing partners: selection priorities of joint liability group leaders," Empirical Economics, Springer, vol. 64(1), pages 323-348, January.
    4. Nadia Nahar Purkayastha & Şule Erdem Tuzlukaya, 2020. "Determination Of The Benefits And Risks Of Peer-To-Peer (P2p) Lending: A Social Network Teory Approach," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 9(3), pages 131-143.
    5. Ghulam Hussain, A.K.M. & Nargis, Nigar & Ashiquzzaman, S.M. & Khalil, Fahad, 2019. "The employment impact of microcredit program participation in Bangladesh: Evidence from a longitudinal household survey," World Development Perspectives, Elsevier, vol. 13(C), pages 34-49.
    6. Saniter, Nils, 2012. "Estimating Heterogeneous Returns to Education in Germany via Conditional Second Moments," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62050, Verein für Socialpolitik / German Economic Association.
    7. Laila Arjuman Ara & Mohammad Masudur Rahman & Chanwahn Kim, 2020. "Impact of Microcredit on Second Generation Borrowers in Bangladesh: Revisited," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 21(1), pages 142-157, March.
    8. James O’Brien, 2020. "Public Works and Children’s School Attendance: Evidence from Rural India," Review of Development and Change, , vol. 25(2), pages 193-214, December.

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