Working Paper: NBER ID: w17905
Authors: Francisco J. Buera; Joseph P. Kaboski; Yongseok Shin
Abstract: We provide a quantitative evaluation of the aggregate and distributional impact of microfinance or credit programs targeted toward small businesses. We find that the redistributive impact of microfinance is stronger in general equilibrium than in partial equilibrium, but the impact on aggregate output and capital is smaller in general equilibrium. Aggregate total factor productivity (TFP) increases with microfinance in general equilibrium but decreases in partial equilibrium. When general equilibrium effects are accounted for, scaling up the microfinance program will have only a small impact on per-capita income, because the increase in TFP is counterbalanced by lower capital accumulation resulting from the redistribution of income from high-savers to low-savers. Nevertheless, the vast majority of the population will be positively affected by microfinance through the increase in equilibrium wages.
Keywords: Microfinance; General Equilibrium; Partial Equilibrium; Entrepreneurship; Redistribution
JEL Codes: D91; D92; E44; O11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| microfinance availability (O16) | redistribution of income (D31) |
| redistribution of income (D31) | lower aggregate saving (E21) |
| lower aggregate saving (E21) | lower capital accumulation (E22) |
| microfinance availability (O16) | increased wages (J39) |
| increased wages (J39) | low-productivity entrepreneurs exit market (L26) |
| microfinance availability (O16) | increase in aggregate TFP in GE (O49) |
| microfinance availability (O16) | decrease in aggregate TFP in PE (O49) |
| microfinance availability (O16) | increase in aggregate output in PE (E23) |
| microfinance availability (O16) | increase in aggregate output in GE (E23) |
| microfinance availability (O16) | substantial welfare gains in GE (D69) |
| higher factor prices (F16) | decrease in entrepreneurial profits for high-ability entrepreneurs (D29) |