Village Economic Accounts: Real and Financial Intertwined

Archawa Paweenawat and Robert Townsend

American Economic Review, 2012, vol. 102, issue 3, 441-46

Abstract: We propose a framework to create village economic and balance of payments accounts from a micro-level household survey. Using the Townsend Thai data, we create the accounts for villages in rural and semi-urban areas of Thailand. We then study these village economies as small open countries, exploring in particular the relationship between the real and financial variables. We examine cross-village risk-sharing and the Feldstein-Horioka puzzle. Our results suggest that within-village risk-sharing is better than across-village and, while there is smoothing in both, the mechanisms are different. We also find that, unlike countries, the cross-village capital markets are highly integrated.

Date: 2012
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