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Precautionary Saving under LiquidityConstraints: Evidence from Rural Pakistan

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  • Jeong-Joon Lee

    (Department of Economics, Towson University)

  • Yasuyuki Sawada

    (Faculty of Economics, University of Tokyo)

Abstract

This paper investigates precautionary saving under liquidity constraints in Pakistan using household panel data. In particular, while we estimates Kimball's (1990) prudence parameter, we deviate from Dynan's (1993) framework by explicitly considering liquidity constraints, as in Zeldes (1989). By doing so,we attempt to diffeerentiate the standard precautionary saving caused by uncertainty from the oneduetoliquidity constraints. Furthermore, endogenous liquidity constraints are considered to resolve issues of selection biases. In this study, we document substantial evidence of the presence of precautionary saving in Pakistan. More specifically, the estimated prudence is significantly higher for liquidity-constrainedhouse-holds as compared with unconstrained ones. The results support the emerging view that facilitating saving may often be more important than finding better ways of lending to the poor.

Suggested Citation

  • Jeong-Joon Lee & Yasuyuki Sawada, 2005. "Precautionary Saving under LiquidityConstraints: Evidence from Rural Pakistan," CIRJE F-Series CIRJE-F-377, CIRJE, Faculty of Economics, University of Tokyo.
  • Handle: RePEc:tky:fseres:2005cf377
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    Cited by:

    1. You, Jing, 2014. "Risk, under-investment in agricultural assets and dynamic asset poverty in rural China," China Economic Review, Elsevier, vol. 29(C), pages 27-45.
    2. Koen Rossel-Cambier, 2010. "Do Multiple Financial Services Enhance the Poverty Outreach of Microfinance Institutions?," Working Papers CEB 10-058, ULB -- Universite Libre de Bruxelles.
    3. Carolina Laureti & Alain De Janvry & Elisabeth Sadoulet, 2017. "Flexible Microfinance Products for Financial Management by the Poor: Evidence from SafeSave," Working Papers CEB 17-036, ULB -- Universite Libre de Bruxelles.
    4. Kseniya Abanokova & Michael Lokshin, 2015. "Changes in household composition as a shock-mitigating strategy," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 23(2), pages 371-388, April.
    5. Sawada, Yasuyuki & Takasaki, Yoshito, 2017. "Natural Disaster, Poverty, and Development: An Introduction," World Development, Elsevier, vol. 94(C), pages 2-15.
    6. Montalbano, Pierluigi, 2011. "Trade Openness and Developing Countries' Vulnerability: Concepts, Misconceptions, and Directions for Research," World Development, Elsevier, vol. 39(9), pages 1489-1502, September.
    7. Michler, Jeffrey D. & Balagtas, Joseph Valdes, 2013. "The Determinants of Rice Storage: Evidence from Rice Farmers in Bangladesh," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150267, Agricultural and Applied Economics Association.
    8. Manuela Deidda, 2014. "Precautionary saving under liquidity constraints: evidence from Italy," Empirical Economics, Springer, vol. 46(1), pages 329-360, February.
    9. Yuan, Yan & Xu, Lihe, 2015. "Are poor able to access the informal credit market? Evidence from rural households in China," China Economic Review, Elsevier, vol. 33(C), pages 232-246.
    10. Carter, Michael R. & Lybbert, Travis J., 2012. "Consumption versus asset smoothing: testing the implications of poverty trap theory in Burkina Faso," Journal of Development Economics, Elsevier, vol. 99(2), pages 255-264.
    11. Ruiz, Claudia, 2013. "From pawn shops to banks : the impact of formal credit on informal households," Policy Research Working Paper Series 6634, The World Bank.
    12. Tewodaj Mogues, 2011. "Shocks and Asset Dynamics in Ethiopia," Economic Development and Cultural Change, University of Chicago Press, vol. 60(1), pages 91-120.
    13. Kadjo, Didier & Ricker-Gilbert, Jacob E. & Alexander, Corinne E. & Tahirou, Abdoulaye, 2013. "Effects of Storage Losses and Grain Management Practices on Storage: Evidence from Maize Production in Benin," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150522, Agricultural and Applied Economics Association.
    14. Shilpa Aggarwal & Eilin Francis & Jonathan Robinson, 2018. "Grain Today, Gain Tomorrow: Evidence from a Storage Experiment with Savings Clubs in Kenya," NBER Working Papers 24391, National Bureau of Economic Research, Inc.
    15. Yasuyuki Sawada & Kazumitsu Nawata & Masako Ii & Jeong-Joon Lee, 2007. "Did the Credit Crunch in Japan Affect Household Welfare? An Augmented Euler Equation Approach Using Type 5 Tobit Model," CARF F-Series CARF-F-099, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    16. Paxton, Julia & Young, Lauren, 2011. "Liquidity Profiles of Poor Mexican Households," World Development, Elsevier, vol. 39(4), pages 600-610, April.
    17. Jin, Ling & Chen, Kevin Z. & Yu, Bingxin & Huang, Zuhui, 2011. "How prudent are rural households in developing transition economies:," IFPRI discussion papers 1127, International Food Policy Research Institute (IFPRI).
    18. Alessandro Federici & Pierluigi Montalbano, 2012. "Macroeconomic volatility, consumption behaviour and welfare: A cross-country analysis," Working Paper Series 3612, Department of Economics, University of Sussex.
    19. repec:bla:revinw:v:63:y:2017:i:2:p:335-352 is not listed on IDEAS
    20. Julia Paxton & Fan Zhuo, 2011. "Economic Shocks and Savings Behavior by the Rural Poor," Economics Bulletin, AccessEcon, vol. 31(4), pages 3286-3293.
    21. Motoi Kusadokoro & Takeshi Maru & Masanori Takashima, 2016. "Asset Accumulation in Rural Households during the Post-Showa Depression Reconstruction: A Panel Data Analysis," Asian Economic Journal, East Asian Economic Association, vol. 30(2), pages 221-246, June.

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