Working Paper: CEPR ID: DP9773
Authors: Dean S. Karlan; Adam Osman; Jonathan Zinman
Abstract: Identifying the impacts of liquidity shocks on spending decisions is difficult methodologically but important for theory, practice, and policy. Using seven different methods on microenterprise loan applicants, we find striking results. Borrowers report uses of loan proceeds strategically, and more generally their reporting depends on elicitation method. Borrowers also interpret loan use questions differently than the key counterfactual: spending that would not have occurred sans loan. We identify the counterfactual using random assignment of loan approvals and short-run follow-up elicitation of major household and business cash outflows, and estimate that about 100% of loan-financed spending is on business inventory.
Keywords: Consumption; Fungibility; Investment; Liquidity Constraint; Liquidity Shock; Loan Use; Microcredit; Microenterprise
JEL Codes: D12; D22; D92; G21; O12; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| liquidity shocks (E44) | spending decisions (H61) |
| loan approvals (G51) | business investment (G31) |
| business investment (G31) | inventory purchases (L81) |
| liquidity shocks (E44) | business investment (G31) |