The Macroeconomics of Microfinance
Francisco J. Buera, Joseph P. Kaboski, Yongseok Shin
Summary
The paper builds a general-equilibrium model with heterogeneous agents and financial frictions to evaluate the economy-wide effects of large-scale microfinance programs. It finds that while microfinance raises the incomes of marginal entrepreneurs, partial-equilibrium estimates overstate aggregate gains because general-equilibrium wage and capital responses redistribute benefits. The aggregate effects on output and total factor productivity are modest, but the welfare and distributional consequences can be substantial, especially for poorer households.
Key findings
- General-equilibrium feedback (notably higher wages) substantially dampens the aggregate output gains microfinance appears to deliver in partial equilibrium.
- Microfinance raises welfare mainly through redistribution toward the poor and marginal entrepreneurs rather than through large TFP gains.
- Economy-wide effects of expanding microfinance on output and capital accumulation are quantitatively small.
Subjects & keywords
Cite this paper
Francisco J. Buera, Joseph P. Kaboski, & Yongseok Shin (2021). The Macroeconomics of Microfinance. The Review of Economic Studies. https://doi.org/10.1093/restud/rdaa047
@article{buera2021macroeconomics,
author = {Francisco J. Buera and Joseph P. Kaboski and Yongseok Shin},
title = {The Macroeconomics of Microfinance},
journal = {The Review of Economic Studies},
year = {2021},
doi = {10.1093/restud/rdaa047},
url = {https://doi.org/10.1093/restud/rdaa047}
}