An evaluation of financial institutions: Impact on consumption and investment using panel data and the theory of risk-bearing

Alem, Mauro; Townsend, Robert M.

doi:10.1016/j.jeconom.2014.06.011

Cited by 25 publications

(18 citation statements)

References 23 publications

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“…There is an extensive literature investigating the extent of consumption insurance both in the Thai villages we study and in developing countries more generally. A line of work using the same data as we analyze generally finds small or no violations of the hypothesis of complete consumption insurance in these villages; see Bonhomme et al (2012), Kinnan and Townsend (2012), Karaivanov and Townsend (2013), and Alem and Townsend (forthcoming). Of course, though, many other papers have found violations of full insurance in other contexts.…”

Section: Introductionsupporting

confidence: 51%

Heterogeneity and risk sharing in village economies

Chiappori

Samphantharak

Schulhofer‐Wohl

et al. 2014

Quantitative Economics

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We show how to use panel data on household consumption to directly estimate households’ risk preferences. Specifically, we measure heterogeneity in risk aversion among households in Thai villages using a full risk-sharing model, which we then test allowing for this heterogeneity. There is substantial, statistically significant heterogeneity in estimated risk preferences. Full insurance cannot be rejected. As the risk sharing, as-if-complete-markets theory might predict, estimated risk preferences are unrelated to wealth or other characteristics. The heterogeneity matters for policy: Although the average household would benefit from eliminating village-level risk, less-risk-averse households who are paid to absorb that risk would be worse off by several percent of household consumption.

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Section: Introductionsupporting

confidence: 51%

Heterogeneity and risk sharing in village economies

Chiappori

Samphantharak

Schulhofer‐Wohl

et al. 2014

Quantitative Economics

Self Cite

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show abstract

“…However, one can find evidence of policies that address one dimension or the other. For example, Assuncao, Mityakov and Townsend (2012) and Alem and Townsend (2013) find that the distance to a bank branch matters for credit access, which suggests that policies that promote branch openings in rural unbanked locations could help reduce the credit participation cost ψ in our model.…”

Section: Distinguishing the Impact Of Financial Constraintsmentioning

confidence: 79%

Distinguishing Constraints on Financial Inclusion and Their Impact on GDP, TFP, and the Distribution of Income

Dabla‐Norris¹,

Ji²,

Townsend³

et al. 2015

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We develop a micro-founded general equilibrium model with heterogeneous agents and three dimensions of financial inclusion: access (determined by a participation cost), depth (determined by a borrowing constraint), and intermediation efficiency (determined by a monitoring cost). We find that the economic implications of financial inclusion policies vary with the source of frictions. In partial equilibrium, we show analytically that relaxing each of these constraints separately increases GDP. However, when constraints are relaxed jointly, the impacts on the intensive margin (increasing output per entrepreneur with access to credit) are amplified, while the impacts on the extensive margin (promoting credit access) are dampened. In general equilibrium, we discipline the model with firmlevel data from six countries and quantitatively evaluate the policy impacts. Multiple frictions are necessary to match the country-specific variables, e.g., credit access ratio, interest rate spread, and non-performing loans. A TFP decomposition finds that most of the productivity gains are captured by a between-regime shifting effect, whereby talented entrepreneurs obtain credit and expand their businesses. In terms of inequality and welfare, reducing the participation cost benefits talented-butpoor agents the most, while relaxing the borrowing constraint or intermediation cost is more beneficial for talented-and-wealthy agents.

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“…However, one can find evidence of policies that address one dimension or the other. For example, Assuncao et al (2012) and Alem and Townsend (2013) find that the distance to a bank branch matters for credit access, which suggests that policies that promote branch openings in rural, unbanked locations would help reduce the credit participation cost, ψ.…”

Section: Evaluation Of Policy Optionsmentioning

confidence: 99%

Identifying Constraints to Financial Inclusion and Their Impact on GDP and Inequality: A Structural Framework for Policy

Townsend²,

Unsal³

et al. 2015

IMF Working Papers

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We develop a micro-founded general equilibrium model with heterogeneous agents to identify pertinent constraints to financial inclusion. We evaluate quantitatively the policy impacts of relaxing each of these constraints separately, and in combination, on GDP and inequality. We focus on three dimensions of financial inclusion: access (determined by the size of participation costs), depth (determined by the size of collateral constraints resulting from limited commitment), and intermediation efficiency (determined by the size of interest rate spreads and default possibilities due to costly monitoring). We take the model to a firm-level data from the World Bank Enterprise Survey for six countries at varying degrees of economic development-three low-income countries (Uganda, Kenya, Mozambique), and three emerging market countries (Malaysia, the Philippines, and Egypt). The results suggest that alleviating different financial frictions have a differential impact across countries, with country-specific characteristics playing a central role in determining the linkages and tradeoffs between inclusion, GDP, inequality, and the distribution of gains and losses. JEL Classification Numbers: E23, E44, E69, O11, O16, O57.

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An evaluation of financial institutions: Impact on consumption and investment using panel data and the theory of risk-bearing

Cited by 25 publications

References 23 publications

Heterogeneity and risk sharing in village economies

Heterogeneity and risk sharing in village economies

Distinguishing Constraints on Financial Inclusion and Their Impact on GDP, TFP, and the Distribution of Income

Identifying Constraints to Financial Inclusion and Their Impact on GDP and Inequality: A Structural Framework for Policy

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