Evaluation of Microfinance, Policy, and Financial Integration Using Quantitative Models

Francisco J. Buera’s project studies the impact of financial reforms and microfinance initiatives on household welfare, the quality and type of entrepreneurial activity, and economic development. He is using macroeconomic models that incorporate the richness of micro-level data to analyze the systemic effects of these policies and innovations.

Most of the existing research on the impact of financial innovations and reforms of financial systems tends to focus on the immediate impacts (partial equilibrium analysis of recipients) and neglects the potential systemic effects (general equilibrium analysis of aggregate and individual effects).

One clear example of this disconnect is the recent emphasis on microfinance as a tool for attacking poverty. Microfinance, Buera argues, is naively viewed as a mechanism to promote the well-being of the poor. This view overlooks the fact that the poorest individuals tend to be laborers and that by subsidizing access to credit for small businesses, aggregate productivity and wages could be undermined. Through the use of models and model economies, Buera is investigating these complexities.

The second component of Francisco Buera’s project analyzes the systemic effects of innovations and policies that promote the financial integration of regions within a country. Buera extends his quantitative model of an economy and tests it through two regions, rural and urban, using existing data on micro studies. In addition to gaining better insight into labor and capital markets, the outcome of this analysis aims to promote the development of flow of funds datasets in developing countries.

Research Questions: 
  • What is the impact of reforms that increase the returns to saving by introducing saving products that facilitate access to more developed financial markets?
  • More concretely, can these reforms help the poor by decreasing the supply of domestic credit and the wages of the poor?
  • What are the systemic effects on the poor of policies that subsidize credit, or access to credit, for small businesses? More concretely, can micro-credit undermine the well-being of the poor by lowering the overall efficiency of the economy, and therefore, the wages and income of workers?
Data Notes: 

The first component examines secondary data from Thailand and India.  The second component uses secondary data from Mexico and India.

Outcomes:

The following working papers have come out of this project thus far:

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Status: 
Completed