A Structural Evaluation of a Large-Scale Quasi-Experimental Microfinance Initiative

Authors

  • Joseph P. Kaboski,

    1. Dept. of Economics, University of Notre Dame, 717 Flanner Hall, Notre Dame, IN 46556, U.S.A. and NBER; jkaboski@ND.EDU
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  • Robert M. Townsend

    1. Dept. of Economics, Massachusetts Institute of Technology, Cambridge, MA 02138, U.S.A. and NBER; rtownsen@MIT.EDU
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    • Research funded by NICHD Grant R03 HD04776801, the Bill and Melinda Gates Foundation grant to the University of Chicago Consortium on Financial Systems and Poverty, John Templeton Foundation, and NSF. We thank Sombat Sakuntasathien, Aleena Adam, Francisco Buera, Flavio Cunha, Xavier Gine, Donghoon Lee, Audrey Light, Ben Moll, Masao Ogaki, Anan Pawasutipaisit, Mark Rosenzweig, Shing-Yi Wang, Bruce Weinberg, and participants at FRB-Chicago, FRB-Minneapolis, Harvard–MIT, Michigan, NIH, Ohio State, U.W. Milwaukee, NYU, Yale, NEUDC 2006, 2006 Econometric Society, BREAD 2008, World Bank Microeconomics of Growth 2008, UC-UTCC, NYU Development Conference, and SED 2009 presentations. Bin Yu, Taehyun Ahn, and Jungick Lee provided excellent research assistance on this project.


Abstract

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 preprogram data, we evaluate the model's ability to predict and interpret the impact of the village fund intervention. Simulations from the model mirror the data in yielding a greater increase in consumption than credit, which is interpreted as evidence of credit constraints. A cost–benefit analysis using the model indicates that some households value the program much more than its per household cost, but overall the program costs 30 percent more than the sum of these benefits.

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