Abstract not found

The premise of neo-classical growth theory is that it is possible to do a reasonable job of explaining the broad patterns of economic change across countries, by looking at it through the lens of an aggregate production function. The aggregate production function relates the total output of an economy (a country, for example) to the aggregate amounts of labor, human capital and physical capital in the economy, and

Abstract not found

This paper uses a structural model to understand, predict, and evaluate the impact of an exogenous microcredit intervention program, the Thai Million Baht Village Fund program. We model household decisions in the face of borrowing constraints, income uncertainty, and high-yield indivisible investment opportunities. After estimation of parameters using pre-program data, we evaluate the models ability to predict and interpret the impact of the village fund intervention. Simulated predictions from the model mirror actual data in reproducing a greater increase in consumption than credit, which is interpreted as evidence of credit contraints. A cost-bene…t analysis using the model indicates that some households value the program much more than its per household cost, but overall the program costs 20 percent more than the sum of these bene…ts.

Expanding access to financial services holds the promise to help reduce poverty and spur economic development. But, as a practical matter, commercial banks have faced challenges expanding access to poor and low-income households in developing economies, and nonprofits have had limited reach. We review recent innovations that are improving the quantity and quality of financial access. They are taking possibilities well beyond early models centered on providing “microcredit ” for small business investment. We focus on new credit mechanisms and devices that help households manage cash flows, save, and cope with risk. Our eye is on contract designs, product innovations, regulatory policy, and ultimately economic and social impacts. We relate the innovations and empirical evidence to theoretical ideas, drawing links in particular to new work in behavioral economics and to randomized evaluation methods.

We use a randomized field experiment to estimate the effect of having a United States bank account on Mexican migrants ’ savings and remittances. With support from the Mexican Consulate and a local bank targeting Hispanic clientele, we randomly assigned assistance in obtaining a matrícula consular card, which we call “treatment. ” This consulate-issued identification card is accepted by many U.S. financial institutions for the purpose of establishing identity for new accounts, and has little other use in the small U.S. city where we conduct the experiment. Migrants in the treatment group were 38 percentage points more likely to open a U.S. bank account, increased their savings as a share of income by 9 percentage points and decreased their remittances to Mexico as a share of income by 6 percentage points. There is heterogeneity of treatment effects by migrants ’ reported degree of control over how their remittances are allocated in Mexico. Among migrants who report having no control (as opposed to shared or sole control), treatment causes a higher take-up of U.S. bank accounts, a larger increase in total savings, a shift away from Mexico savings toward U.S. savings, and an increase in income. These results suggest that extending bank access can raise savings in a low-income minority population. Additionally, they suggest that issues of control affect intra-household resource allocations.

Recent data compilations show that many poor and nonpoor people in many develop-ing countries face a high degree of financial exclusion and high barriers in access to finance. Theory and empirical evidence point to the critical role that improved access to finance has in promoting growth and reducing income inequality. An extensive lit-erature shows the channels through which finance promotes enterprise growth and improves aggregate resource allocation. There is less evidence at the household level, however, and on the effectiveness of policies to overcome financial exclusion. The article summarizes recent efforts to measure and analyze the impact of access to finance and discusses the unfinished research agenda. JEL codes: G2, G21, O16 Financial markets and institutions emerge to alleviate market frictions arising from information asymmetries and transaction costs. A substantial theoretical and empirical literature shows the importance of efficient financial systems for long-term economic development (see Levine 2005 for a survey). Recent evi-dence shows that financial development is both pro-growth and pro-poor. Countries with deeper financial systems grow faster and reduce income inequal-

Notes: Center discussion papers are preliminary materials circulated to stimulate discussion and critical comments.

Abstract Most people in rural Africa do not have bank accounts. In this paper, we combine experimental and survey evidence from Western Kenya to document some of the supply and demand factors behind such low levels of financial inclusion. Our experiment had two parts. In the first part, we waived the fixed cost of opening a basic savings account at a local bank for a random subset of individuals who were initially unbanked. While 63% of people opened an account, only 18% actively used it. Survey evidence suggests that the main reasons people did not begin saving in their bank accounts are that: (1) they do not trust the bank, (2) service is unreliable, and (3) withdrawal fees are prohibitively expensive. In the second part of the experiment, we provided information on local credit options and lowered the eligibility requirements for an initial small loan. Within the following 6 months, only 3% of people initiated the loan application process. Survey evidence suggests that people do not borrow because they do not want to risk losing their collateral. These results suggest that, while simply expanding access to banking services (for instance by lowering account opening fees) will benefit a minority, broader success may be unobtainable unless the quality of services is simultaneously improved. There are also challenges on the demand side, however. More work needs to be done to understand what savings and credit products are best suited for the majority of rural households. * We thank Kathy Nolan and Kim Siegal for excellent research assistance and IPA Kenya for managing the field work. We thank Cynthia Kinnan, William Lyakurwa, and conference participants at Strathmore University and the 5th NBER Africa conference for helpful comments and suggestions. This study was funded through grants from the International Growth Center, the NBER Africa project, and the International Initiative for Impact Evaluations (3ie). All errors are our own.

This paper develops a structural model of credit constrained household consump-tion, indivisible investment, and savings behavior, and tests the model using a major government microfinance program as an exogenous quasi-experimental injection of credit. After estimation of parameters using pre-program data, the estimated model is evaluated using the Thai Million Baht Village Fund Program. Simulated predic-tions from the model mirror actual data in reproducing a greater increase in consump-tion than credit, which is interpreted as evidence of credit contraints. A cost-benefit analysis using the model indicates that the program costs just 66 percent of a transfer program providing an equivalent benefit.