The Impact of Credit on Village Economies

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

Kaboski and Townsend (2009)Rural and peri-urban.Quasiexperimental, natural experiment, panel data at HH level and moderate robustness.One-time government grant to establish village banks that offer credit.Positive impact on HH business and labor incomes Female-headed HHs 10% more likely to have positive and above-average business incomes. Increase in HH consumption of elastic goods (e.g. fuel, meat, dairy). Increase in HH business income. No impact on business formation or investment. villages.