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consumption and investment in resource pooling family networks

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  • Angelucci, Manuela
  • De Giorgi, Giacomo
  • Rasul, Imran

Abstract

This paper examines a novel motive for resource pooling in family networks in rural economies: to relax credit constraints and facilitate investment in non-collateralizeable assets for which credit market imperfections are most binding. We thus complement established literature examining risk-sharing motives for resource transfers within family networks, as well as motives based on kinship tax obligations. We do so exploiting the Progresa program data, in which family networks can be identified, households are subject to large exogenous resource inflows, and detailed responses on consumption and an array of investments can be tracked in a household panel over five years. We find that for every dollar that accrues to the family network through Progresa transfers, food consumption expenditures increase by around 65c for both households eligible for Progresa and ineligible members of the same family network. Hence the marginal propensity of families to invest/save out of every dollar is around .35, and we document how this is channeled towards easing credit constraints poorer network members face in financing non-collateralizable investments into their children's human capital. We show these consumption and investment benefits of being embedded within a family network are sustained five years after households first experience resource transfers from Progresa. Hence the interplay between resource inflows and resource pooling by family networks can place network members on sustained paths out of poverty.

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  • Angelucci, Manuela & De Giorgi, Giacomo & Rasul, Imran, 2017. "consumption and investment in resource pooling family networks," CEPR Discussion Papers 11889, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11889
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    Cited by:

    1. Anandi Mani & Emma Riley, 2019. "Social networks, role models, peer effects, and aspirations," WIDER Working Paper Series wp-2019-120, World Institute for Development Economic Research (UNU-WIDER).
    2. Ethan Ligon & Laura Schechter, 2020. "Structural Experimentation to Distinguish between Models of Risk Sharing with Frictions in Rural Paraguay," Economic Development and Cultural Change, University of Chicago Press, vol. 69(1), pages 1-50.
    3. Orazio Attanasio & Corina Mommaerts & Costas Meghir, 2015. "Insurance in Extended Family Networks," Cowles Foundation Discussion Papers 1996, Cowles Foundation for Research in Economics, Yale University.
    4. Vesall Nourani & Christopher Barrett & Eleonora Patacchini & Thomas Walker, 2019. "Working Paper 313 - Altruism, Insurance, and Costly Solidarity Commitments," Working Paper Series 2439, African Development Bank.
    5. Roychowdhury, Punarjit, 2019. "Peer effects in consumption in India: An instrumental variables approach using negative idiosyncratic shocks," World Development, Elsevier, vol. 114(C), pages 122-137.
    6. Bertoli, Simone & Murard, Elie, 2020. "Migration and co-residence choices: Evidence from Mexico," Journal of Development Economics, Elsevier, vol. 142(C).
    7. Islam, Asad & Nguyen, Chau, 2018. "Do networks matter after a natural disaster? A study of resource sharing within an informal network after Cyclone Aila," Journal of Environmental Economics and Management, Elsevier, vol. 90(C), pages 249-268.
    8. Ji, Yaling, 2020. "Religiosity and the adoption of formal financial services," Economic Modelling, Elsevier, vol. 89(C), pages 378-396.
    9. Jain, Prachi, 2020. "Imperfect monitoring and informal insurance: The role of social ties," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 241-256.

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