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American Economic Review: Vol. 102 No. 3 (May 2012)

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Kinship and Financial Networks, Formal Financial Access, and Risk Reduction

Article Citation

Kinnan, Cynthia, and Robert Townsend. 2012. "Kinship and Financial Networks, Formal Financial Access, and Risk Reduction." American Economic Review, 102(3): 289-93.

DOI: 10.1257/aer.102.3.289

Abstract

Kinship networks are beneficial for smoothing consumption and investment, but the channels are not well understood. We study the financing devices used for consumption and investment by Thai households. Households that are connected to banks achieve significantly better consumption smoothing than unconnected households; indirect connections via inter-household borrowing are as effective as direct borrowing. Investment appears to be facilitated by kinship: households with kin in the village display reduced sensitivity of investment to income, while connections to banks do not significantly reduce sensitivity. Kin may act as "implicit collateral," permitting borrowing that would violate repayment constraints in its absence.

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Authors

Kinnan, Cynthia (Northwestern U)
Townsend, Robert (MIT)

JEL Classifications

Z13: Economic Sociology; Economic Anthropology; Social and Economic Stratification
D14: Personal Finance
O12: Microeconomic Analyses of Economic Development
O16: Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
O18: Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure


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