Micro-credit, risk coping and the incidence of rural-to-urban migration
The focus of this paper is on the rural poor of south Asia and their struggle to cope with the seasonal risk of unemployment and the ensuing income risks. In the absence of formal credit or insurance markets the rural poor typically resort to, among other options, the following informal strategies to cope with seasonal income risks: (i) seasonal rural-to-urban migration, and (ii) mutual (ex-post) transfers between families of friends and relatives. Access to credit through a microfinance institution could also provide a competing source of insurance. The question raised in this paper is how the access to credit may affect the more traditional/time honoured means of risk coping, such as seasonal migration. Given that credit, i.e., a creditfinanced activity, is potentially a substitute for seasonal migration, it is reasonable to argue that easy access to credit (or high return on credit) will lower the incidence of migration. However, there also exists a potential complementarity between the two activities (if implemented jointly) in terms of gains due to diversification of income risks. That is, given that income from migration is not typically subject to the same shocks as income generated by a credit-financed activity, a joint adoption of both activities creates opportunities for diversification of risk in the family incomes portfolio. If the diversification gains are large enough then the adoption of both activities jointly will be preferred to adopting either of the activities individually. In that event, introduction of microfinance in rural societies may result in raising the incidence of migration. The joint adoption case for rural households is modelled using a choice theoretic framework, and exact conditions are derived for when joint adoption is preferable to adoption of a single project. The model of joint adoption is estimated by applying a Bivariate Probit regression model on a single cross-section of household survey data from rural Bangladesh. Our preliminary results show that indeed the probability of participation in migration by household members is positively related to the probability of the household being a credit recipient.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.ael.ethz.ch/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lucas, Robert E B & Stark, Oded, 1985. "Motivations to Remit: Evidence from Botswana," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 901-18, October.
- Rosenzweig, Mark R, 1988.
"Risk, Implicit Contracts and the Family in Rural Areas of Low-income Countries,"
Royal Economic Society, vol. 98(393), pages 1148-70, December.
- Rosenzweig, Mark R., 1986. "Risk, Implicit Contracts and the Family in Rural Areas of Low-Income Countries," Bulletins 7518, University of Minnesota, Economic Development Center.
- Hoddinott, John, 1994. "A Model of Migration and Remittances Applied to Western Kenya," Oxford Economic Papers, Oxford University Press, vol. 46(3), pages 459-76, July.
- Stark, Oded & Levhari, David, 1982. "On Migration and Risk in LDCs," Economic Development and Cultural Change, University of Chicago Press, vol. 31(1), pages 191-96, October.
- Katz, Eliakim & Stark, Oded, 1986. "Labor Migration and Risk Aversion in Less Developed Countries," Journal of Labor Economics, University of Chicago Press, vol. 4(1), pages 134-49, January.
- Ben Rogaly & Daniel Coppard & Abdur Safique & Kumar Rana & Amrita Sengupta & Jhuma Biswas, 2002. "Seasonal Migration and Welfare/Illfare in Eastern India: A Social Analysis," Journal of Development Studies, Taylor & Francis Journals, vol. 38(5), pages 89-114.
- Stark, Oded & Lucas, Robert E B, 1988. "Migration, Remittances, and the Family," Economic Development and Cultural Change, University of Chicago Press, vol. 36(3), pages 465-81, April.
When requesting a correction, please mention this item's handle: RePEc:zbw:gdec05:3475. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.