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Informational Barriers to Credit for Migrants: Evidence from Guatemala

Listed author(s):
  • Ariel BenYishay

Does being a migrant in a developing country cause an individual to receive less access to credit? Migrant status can be a useful signal for lenders in settings with weak contract enforcement and in the absence of well-developed information markets. I investigate this contract enforcement-based explanation using data on households that have migrated within Guatemala. To address reverse causality and omitted variable issues, I adopt an instrumental variables approach. I identify individuals who are most sensitive to violence or crime and who were born in particularly dangerous locations; the interaction of these factors causes these individuals to have a higher propensity to move. Although such migrants are not less likely to apply for loans from formal sources, they are significantly less likely to receive them. Furthermore, weak enforcement of contracts dominates alternative explanations of this result, such as moral hazard and adverse selection.

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File URL: http://dx.doi.org/10.1086/664023
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File URL: http://dx.doi.org/10.1086/664023
Download Restriction: Access to the online full text or PDF requires a subscription.

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Article provided by University of Chicago Press in its journal Economic Development and Cultural Change.

Volume (Year): 60 (2012)
Issue (Month): 3 ()
Pages: 535-570

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Handle: RePEc:ucp:ecdecc:doi:10.1086/664023
Contact details of provider: Web page: http://www.journals.uchicago.edu/EDCC/

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  1. Benyishay, Ariel & Betancourt, Roger R., 2010. "Civil liberties and economic development," Journal of Institutional Economics, Cambridge University Press, vol. 6(03), pages 281-304, September.
  2. Sendhil Mullainathan & Marianne Bertrand & Erzo F.P. Luttmer, 1998. "Network Effects and Welfare Cultures," Working papers 98-21, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Dean Karlan & Jonathan Zinman, 2009. "Observing Unobservables: Identifying Information Asymmetries With a Consumer Credit Field Experiment," Econometrica, Econometric Society, vol. 77(6), pages 1993-2008, November.
  4. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
  5. La Ferrara, Eliana, 2003. "Kin Groups and Reciprocity: A Model of Credit Transactions in Ghana," CEPR Discussion Papers 3705, C.E.P.R. Discussion Papers.
  6. David J. McKenzie & Nicole Hildebrandt, 2005. "The Effects of Migration on Child Health in Mexico," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Fall 2005), pages 257-289, August.
  7. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
  8. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 531-542.
  9. Beegle, Kathleen & De Weerdt, Joachim & Dercon, Stefan, 2010. "Migration and Economic Mobility in Tanzania: Evidence from a Tracking Survey," CEPR Discussion Papers 7759, C.E.P.R. Discussion Papers.
  10. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
  11. Wydick, Bruce, 1999. "Can Social Cohesion Be Harnessed to Repair Market Failures? Evidence from Group Lending in Guatemala," Economic Journal, Royal Economic Society, vol. 109(457), pages 463-475, July.
  12. David de Meza & David C. Webb, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 281-292.
  13. Rubiana Chamarbagwala & Hilcías E. Morán, 2009. "The Human Capital Consequences of Civil War: Evidence from Guatemala," HiCN Working Papers 59, Households in Conflict Network.
  14. Kaivan Munshi, 2003. "Networks in the Modern Economy: Mexican Migrants in the U. S. Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 549-599.
  15. David Mckenzie & Hillel Rapoport, 2004. "Network Effects and the Dynamics of Migration and Inequality: Theory and Evidence from Mexico," Working Papers 2004-3, Bar-Ilan University, Department of Economics.
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