nep-mfd New Economics Papers
on Microfinance
Issue of 2012‒11‒17
three papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. Hoping to Win, Expected to Lose: Theory and Lessons on Micro Enterprise Development By Karlan, Dean; Knight, Ryan; Udry, Christopher
  2. Loan Regulation and Child Labor in Rural India By Dasgupta, Basab; Zimmermann, Christian
  3. The Effects of Financial Development on Trade Performance and the Role of Institutions By Youssouf KIENDREBEOGO

  1. By: Karlan, Dean (Yale University); Knight, Ryan (Yale University); Udry, Christopher (Yale University)
    Abstract: Many basic economic theories with perfectly functioning markets do not predict the existence of the vast number of microenterprises readily observed across the world. We put forward a model that illuminates why financial and managerial capital constraints may impede experimentation, and thus limit learning about the profitability of alternative firm sizes. The model shows how lack of information about one's own type, but willingness to experiment to learn one's type, may lead to short-run negative expected returns to investments on average, with some outliers succeeding. To test the model we put forward first a motivating experiment from Ghana, and second a small meta-analysis of other experiments. In the Ghana experiment, we provide inputs to microenterprises, specifically financial capital (a cash grant) and managerial capital (consulting services), to catalyze adoption of investments and practices aimed towards enterprise growth. We find that entrepreneurs invest the cash, and take the advice, but both lead to lower profits on average. In the long run, they revert back to their prior scale of operations. The small meta analysis includes results from 18 other experiments in which either capital or managerial capital were relaxed, and find mixed support for this theory.
    JEL: D21 D24 D83 D92 L20 M13 O12
    Date: 2012–08
    URL: http://d.repec.org/n?u=RePEc:ecl:yaleco:105&r=mfd
  2. By: Dasgupta, Basab (World Bank); Zimmermann, Christian (Federal Reserve Bank of St. Louis)
    Abstract: We study the impact of loan regulation in rural India on child labor with an overlapping-generations model of formal and informal lending, human capital accumulation, adverse selection, and differentiated risk types. Specifically, we build a model economy that replicates the current outcome with a loan rate cap and no lender discrimination by risk using a survey of rural lenders. Households borrow primarily from informal moneylenders and use child labor. Removing the rate cap and allowing lender discrimination markedly increases capital use, eliminates child labor, and improves welfare of all household types.
    Keywords: child labor, India, informal lending, lending discrimination, interest rate caps
    JEL: O16 O17 E26
    Date: 2012–10
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp6979&r=mfd
  3. By: Youssouf KIENDREBEOGO (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: This paper aims to address the empirical question of whether a country's level of manufacturing trade is affected by its financial sector development and to investigate the role of institutions in this relationship. Countries endowed with better-developed financial systems tend to specialize in industries that rely on ex- ternal fi nance in production. This e ffect is likely to be stronger in countries with high-quality institutions. Using pure cross-sectional and panel speci fications on a sample of 75 countries over the period 1971-2010, we find that financial development strongly and robustly exerts a positive eff ect on manufacturing exports, even after controlling for the eff ect of banking crises. Furthermore, institutional quality is found to have a favorable eff ect on the extent to which finance influences manufacturing trade, suggesting a multiplicity of experiences of the largest exporters of manufactured goods.
    Keywords: Financial Development, Manufacturing Exports, Comparative Advantages, Institutional Quality
    Date: 2012–11–05
    URL: http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00748544&r=mfd

This nep-mfd issue is ©2012 by Olivier Dagnelie. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.