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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. Mckenzie, David & Rapoport, Hillel, 2007. "Network effects and the dynamics of migration and inequality: Theory and evidence from Mexico," Journal of Development Economics, Elsevier, vol. 84(1), pages 1-24, September.
  2. 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.
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  4. Eliana La Ferrara, 2003. "Kin Groups and Reciprocity: A Model of Credit Transactions in Ghana," American Economic Review, American Economic Association, vol. 93(5), pages 1730-1751, December.
  5. Hildebrandt, Nicole & McKenzie, David, 2005. "The effects of migration on child health in Mexico," Policy Research Working Paper Series 3573, The World Bank.
  6. Dean Karlan & Jonathan Zinman, 2005. "Observing unobservables: identifying information asymmetries with a consumer-credit field experiment," Proceedings 961, Federal Reserve Bank of Chicago.
  7. Chamarbagwala, Rubiana & Morán, Hilcías E., 2011. "The human capital consequences of civil war: Evidence from Guatemala," Journal of Development Economics, Elsevier, vol. 94(1), pages 41-61, January.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
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  13. Beegle, Kathleen & De Weerdt, Joachim & Dercon, Stefan, 2008. "Migration and Economic Mobility in Tanzania: Evidence from a Tracking Survey," Policy Research Working Paper Series 4798, The World Bank.
  14. 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.
  15. 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.
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