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Formal Savings Spillovers on Microenterprise Growth and Production Decisions Among Non-Savers in Villages: Evidence from a Field Experiment

Jeffrey Flory ()

No 125013, 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington from Agricultural and Applied Economics Association

Abstract: This paper uses a randomized field experiment to identify the spillover effects of increased formal savings-use on non-farm business activity and production decisions of non-savers in villages. A panel analysis of 2,006 households in Central Malawi shows that a randomly assigned formal savings encouragement exogenously increases adoption of high-liquidity formal savings accounts in village communities. This increases receipts of cash assistance by non-saving households in the middle wealth-stratum, who may be on the margins for deciding to operate a non-farm business, or start growing cash crops or high-yielding crop varieties (HYVs). The hypothesized channel of effects is that expanded formal savings-use increases liquidity and decreases transaction costs, lowers the cost of making transfers, and thus increases receipts of cash aid even by non-saving households. Increased cash assistance is then linked among these households to increased probability of operating a non-farm enterprise or switching to HYVs or cash crops. This may result from a perception of increased security, which causes households to be more willing to take on higher-risk, higher-reward production activities. To date, little is known about how microfinance affects pre-existing informal insurance practices, and whether the production choices among those who utilize informal practices change as safety nets based on inter-household transfers strengthen or weaken when financial markets expand. This paper helps fill that gap.

Keywords: Agricultural Finance; Consumer/Household Economics; Crop Production/Industries; Production Economics (search for similar items in EconPapers)
Pages: 26
Date: 2012-06-04
New Economics Papers: this item is included in nep-afr, nep-ias and nep-mfd
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea12:125013

DOI: 10.22004/ag.econ.125013

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