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American Economic Journal: Applied Economics: Vol. 4 No. 2 (April 2012)

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The Impact of Credit on Village Economies

Article Citation

Kaboski, Joseph P., and Robert M. Townsend. 2012. "The Impact of Credit on Village Economies." American Economic Journal: Applied Economics, 4(2): 98-133.

DOI: 10.1257/app.4.2.98

Abstract

This paper evaluates the short- and longer term impact of Thailand's "Million Baht Village Fund" program, among the largest scale government microfinance iniatives in the world, using pre- and post-program panel data and quasi-experimental cross-village variation in credit per household. We find that the village funds have increased total short-term credit, consumption, agricultural investment, and income growth (from business and labor), but decreased overall asset growth. We also find a positive impact on wages, an important general equilibrium effect. The findings are broadly consistent qualitatively with models of credit-constrained household behavior and models of intermediation and growth. (JEL D14, G21, O12, O16, O18)

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Authors

Kaboski, Joseph P. (U Notre Dame)
Townsend, Robert M. (MIT)

JEL Classifications

D14: Personal Finance
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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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