Measuring the Equilibrium Impacts of Credit: Evidence from the Indian Microfinance Crisis / Emily Breza, Cynthia Kinnan.

Format:

Book

Author/Creator:

Breza, Emily.

Contributor:

National Bureau of Economic Research.

Kinnan, Cynthia.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24329.

NBER working paper series no. w24329

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Measuring the Equilibrium Impacts of Credit

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

In October 2010, the state government of Andhra Pradesh, India issued an emergency ordinance, bringing microfinance activities in the state to a complete halt and causing a nation-wide shock to the liquidity of lenders, especially those with loans in the affected state. We use this massive dislocation in the microfinance market to identify the causal impacts of a reduction in credit supply on consumption, earnings, and employment in general equilibrium in rural labor markets. Using a proprietary district-level data set from 25 separate, for-profit microlenders matched with household data from the National Sample Survey, we find that district-level reductions in credit supply are associated with significant decreases in casual daily wages, household wage earnings and consumption. We find a substantial consumption multiplier from credit that is likely driven by two channels - aggregate demand and business investment. We calibrate a simple two-period, two-sector model of the rural economy that incorporates both channels and show that the magnitude of our wage results is consistent with the model's predictions.

Notes:

Print version record

February 2018.