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Access to capital in rural Thailand : an estimated model of formal versus informal credit


  • Gine, Xavier


The aim of this paper is to understand the mechanism underlying access to credit. The author focuses on two important aspects of rural credit markets in Thailand. First, moneylenders and other informal lenders coexist with formal lending institutions such as government or commercial banks, and more recently, micro-lending institutions. Second, potential borrowers presumably face sizable transaction costs obtaining external credit. The author develops and estimates a model based on limited enforcement and transaction costs that provides a unified view of those facts. The results show that the limited ability of banks to enforce contracts, more than transaction costs, is crucial in understanding the observed diversity of lenders.

Suggested Citation

  • Gine, Xavier, 2005. "Access to capital in rural Thailand : an estimated model of formal versus informal credit," Policy Research Working Paper Series 3502, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3502

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    References listed on IDEAS

    1. Gine, Xavier & Townsend, Robert M., 2004. "Evaluation of financial liberalization: a general equilibrium model with constrained occupation choice," Journal of Development Economics, Elsevier, vol. 74(2), pages 269-307, August.
    2. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
    3. Parikshit Ghosh & Debraj Ray, 2016. "Information and Enforcement in Informal Credit Markets," Economica, London School of Economics and Political Science, vol. 83(329), pages 59-90, January.
    4. Hoff, Karla & Stiglitz, Joseph E., 1998. "Moneylenders and bankers: price-increasing subsidies in a monopolistically competitive market," Journal of Development Economics, Elsevier, vol. 55(2), pages 485-518, April.
    5. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, vol. 53(2), pages 339-371, August.
    6. Pierre André Chiappori & Bernard Salanié, 2002. "Testing Contract Theory: A Survey of Some Recent Work," CESifo Working Paper Series 738, CESifo Group Munich.
    7. Bell, Clive, 1990. "Interactions between Institutional and Informal Credit Agencies in Rural India," World Bank Economic Review, World Bank Group, vol. 4(3), pages 297-327, September.
    8. Gine, Xavier, 2005. "Cultivate or rent out ? Land security in rural Thailand," Policy Research Working Paper Series 3734, The World Bank.
    9. Hoff, Karla & Stiglitz, Joseph E, 1990. "Imperfect Information and Rural Credit Markets--Puzzles and Policy Perspectives," World Bank Economic Review, World Bank Group, vol. 4(3), pages 235-250, September.
    10. Bell, Clive & Srinivasan, T N & Udry, Christopher, 1997. "Rationing, Spillover, and Interlinking in Credit Markets: The Case of Rural Punjab," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 557-585, October.
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    Cited by:

    1. Nicoletta Batini & Young-Bae Kim & Paul Levine & Emanuela Lotti, 2009. "Informal Labour and Credit Markets: A Survey," School of Economics Discussion Papers 0609, School of Economics, University of Surrey.
    2. Kazunari TSUKADA & Takayuki HIGASHIKATA & Kazushi TAKAHASHI, 2010. "Microfinance Penetration And Its Influence On Credit Choice In Indonesia: Evidence From A Household Panel Survey," The Developing Economies, Institute of Developing Economies, vol. 48(1), pages 102-127.
    3. Ute Filipiak, 2013. "Trusting Financial Institutions: Out of Reach, out of Trust?," Schumpeter Discussion Papers sdp13002, Universitätsbibliothek Wuppertal, University Library.
    4. Mansuri, Ghazala, 2007. "Credit layering in informal financial markets," Journal of Development Economics, Elsevier, vol. 84(2), pages 715-730, November.


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