Capitalizing Village Economies
Author(s): Wyatt Brooks, Danice Guzman, and Joseph Kaboski
Feb 01, 2024 | Working Paper
Abstract
We conduct a randomized controlled trial that adds exogenous funds to local village financial markets in rural Uganda. Existing savings groups allow members to save and borrow with interest from the group. We study 92 such groups, and in half we increase the supply of funds available for loans by an amount equal to one third of average annual group savings. Since groups differ in their size, adding a fixed level of funds generates variation in treatment intensity. We find that this exogenous increase in funds induces local general equilibrium effects. More intensively treated groups experience a significant decrease in interest rates and increase in loan volume. They experience fewer missed meals and more investment. In addition, we find that the intervention
concentrates production: the log-variance of investment increases and local wages rise. We use these results to quantify a model of the village economy and show that increasing the supply of loanable funds reduces misallocation. All households, including those that are net savers at baseline, benefit due to improved risk sharing and higher wages.
Locations
- Uganda