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Follow the money not the cash: Comparing methods for identifying consumption and investment responses to a liquidity shock

Dean Karlan, Adam Osman and Jonathan Zinman

Journal of Development Economics, 2016, vol. 121, issue C, 11-23

Abstract: Measuring the impacts of liquidity shocks on spending is difficult methodologically but important for theory, practice, and policy. We compare three approaches for tackling this question: directly asking borrowers how they spend proceeds from a loan (direct elicitation); asking borrowers using a list randomization technique (indirect elicitation) that allows them to answer discretely in cases where loan uses are at odds with lender policies or social norms; and, a counterfactual analysis in which we compare household and enterprise cash outflows for those in a treatment group, randomly assigned to receive credit, to a control group. The counterfactual analysis yields an estimate that about 100% of loan-financed spending is on business inventory. For the direct and indirect elicitations, we find evidence of both strategic misreporting and “following the cash”: borrowers likely report what they physically did with cash proceeds, rather than counterfactual spending.

Keywords: Loan use; Consumption; Investment; Liquidity constraint; Liquidity shock; Fungibility; Microcredit; Microenterprise (search for similar items in EconPapers)
JEL-codes: D12 D22 D92 G21 O12 O16 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:121:y:2016:i:c:p:11-23

DOI: 10.1016/j.jdeveco.2015.10.009

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