An evaluation of financial institutions: Impact on consumption and investment using panel data and the theory of risk-bearing
The theory of the optimal allocation of risk and the Townsend Thai panel data on financial transactions are used to assess the impact of the major formal and informal financial institutions of an emerging market economy. We link financial institution assessment to the actual impact on clients, rathe...
| Main Authors: | , , |
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| Other Authors: | |
| Format: | Article |
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Elsevier
2017
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| Online Access: | http://hdl.handle.net/1721.1/112207 https://orcid.org/0000-0002-1528-8102 |
| _version_ | 1811069209903366144 |
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| author | Alem, Mauro Townsend, Robert M. Townsend, Robert |
| author2 | Massachusetts Institute of Technology. Department of Economics |
| author_facet | Massachusetts Institute of Technology. Department of Economics Alem, Mauro Townsend, Robert M. Townsend, Robert |
| author_sort | Alem, Mauro |
| collection | MIT |
| description | The theory of the optimal allocation of risk and the Townsend Thai panel data on financial transactions are used to assess the impact of the major formal and informal financial institutions of an emerging market economy. We link financial institution assessment to the actual impact on clients, rather than ratios and non-performing loans. We derive both consumption and investment equations from a common core theory with both risk and productive activities. The empirical specification follows closely from this theory and allows both OLS and IV estimation. We thus quantify the consumption and investment smoothing impact of financial institutions on households including those running farms and small businesses. A government development bank (BAAC) is shown to be particularly helpful in smoothing consumption and investment, in no small part through credit, consistent with its own operating system, which embeds an implicit insurance operation. Commercial banks are smoothing investment, largely through formal savings accounts. Other institutions seem ineffective by these metrics. |
| first_indexed | 2024-09-23T08:07:27Z |
| format | Article |
| id | mit-1721.1/112207 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T08:07:27Z |
| publishDate | 2017 |
| publisher | Elsevier |
| record_format | dspace |
| spelling | mit-1721.1/1122072022-09-23T11:02:36Z An evaluation of financial institutions: Impact on consumption and investment using panel data and the theory of risk-bearing Alem, Mauro Townsend, Robert M. Townsend, Robert Massachusetts Institute of Technology. Department of Economics Townsend, Robert The theory of the optimal allocation of risk and the Townsend Thai panel data on financial transactions are used to assess the impact of the major formal and informal financial institutions of an emerging market economy. We link financial institution assessment to the actual impact on clients, rather than ratios and non-performing loans. We derive both consumption and investment equations from a common core theory with both risk and productive activities. The empirical specification follows closely from this theory and allows both OLS and IV estimation. We thus quantify the consumption and investment smoothing impact of financial institutions on households including those running farms and small businesses. A government development bank (BAAC) is shown to be particularly helpful in smoothing consumption and investment, in no small part through credit, consistent with its own operating system, which embeds an implicit insurance operation. Commercial banks are smoothing investment, largely through formal savings accounts. Other institutions seem ineffective by these metrics. 2017-11-16T18:32:39Z 2017-11-16T18:32:39Z 2014-06 2012-04 2017-10-27T19:34:23Z Article http://purl.org/eprint/type/JournalArticle 0304-4076 http://hdl.handle.net/1721.1/112207 Alem, Mauro, and Townsend, Robert M. “An Evaluation of Financial Institutions: Impact on Consumption and Investment Using Panel Data and the Theory of Risk-Bearing.” Journal of Econometrics 183, 1 (November 2014): 91–103 © 2014 Elsevier https://orcid.org/0000-0002-1528-8102 http://dx.doi.org/10.1016/J.JECONOM.2014.06.011 Journal of Econometrics Creative Commons Attribution-NonCommercial-NoDerivs License http://creativecommons.org/licenses/by-nc-nd/4.0/ application/pdf Elsevier MIT Web Domain |
| spellingShingle | Alem, Mauro Townsend, Robert M. Townsend, Robert An evaluation of financial institutions: Impact on consumption and investment using panel data and the theory of risk-bearing |
| title | An evaluation of financial institutions: Impact on consumption and investment using panel data and the theory of risk-bearing |
| title_full | An evaluation of financial institutions: Impact on consumption and investment using panel data and the theory of risk-bearing |
| title_fullStr | An evaluation of financial institutions: Impact on consumption and investment using panel data and the theory of risk-bearing |
| title_full_unstemmed | An evaluation of financial institutions: Impact on consumption and investment using panel data and the theory of risk-bearing |
| title_short | An evaluation of financial institutions: Impact on consumption and investment using panel data and the theory of risk-bearing |
| title_sort | evaluation of financial institutions impact on consumption and investment using panel data and the theory of risk bearing |
| url | http://hdl.handle.net/1721.1/112207 https://orcid.org/0000-0002-1528-8102 |
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