The Macroeconomics of Microfinance

Francisco Buera, Joseph Kaboski and Yongseok Shin

The Review of Economic Studies, 2021, vol. 88, issue 1, 126-161

Abstract: What is the aggregate and distributional impact of microfinance? To answer this question, we develop a quantitative macroeconomic framework of entrepreneurship and financial frictions in which microfinance is modelled as guaranteed small-size loans. We discipline and validate our model using recent empirical evaluations of small-scale microfinance programs. We find that the long-run general equilibrium impact is substantially different from the short-run effect. In the short-run partial equilibrium, output and capital increase with microfinance but total factor productivity (TFP) falls. In the long run, when general equilibrium effects are considered, as should be for economy-wide microfinance interventions, scaling up microfinance has only a small impact on per-capita income, because an increase in TFP is offset by lower capital accumulation. However, the vast majority of the population benefits from microfinance directly and indirectly. The welfare gains are larger for the poor and the marginal entrepreneurs, although higher interest rates in general equilibrium tilt the gains toward the rich.

Keywords: Microfinance; Entrepreneurship; General equilibrium effect; O11; O16 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (16)

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Related works:
Working Paper: The macroeconomics of microfinance (2013)
Working Paper: The Macroeconomics of Microfinance (2012)
Working Paper: Macroeconomics of Microfinance (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:88:y:2021:i:1:p:126-161.

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