Archive for March 28th, 2008

Literature Survey on Microfinance

March 28, 2008

Microfinance has been a hot topic of discussion ever since Mohd. Yunus and his team got a Nobel Prize in 2006.

I cam across this good literature surveyon Microfinance by Rajdeep Sengupta and Craig P. Aubuchon. It covers the entire issue in detail and covers what has worked and what has not in microfinance

Using behavioral economics to address development

March 28, 2008

This paper from Sendhil Mullainathan looks at how we can apply the various findings in BE to address development problems. Infact it is a great literature survey on the subject.

Economists conceptualize a world populated by calculating, unemotional maximizers. This view shapes our understanding of many crucial elements of development economics–from how rural villagers save, to how parents decide on whether to send their children to school.

Psychological research, however, has documented the incompleteness of this perspective. Individuals have self-control and time inconsistency problems. They can give into shortrun temptations and later regret it. They can have strong feelings about others that drive them to commit both generous and spiteful acts. They often passively accept defaults rather than make active choices. They let the institutions around them make choices for them. And they may misread new data in a ways that fit their beliefs. In short, the rational maximization model may not be a very good approximation of human behavior.

In this paper, I present some of the psychological evidence that I believe helps us to better understand a few core issues in development economics, such as savings, education, and property rights. This gives us new ways to interpret a variety of behaviors in these contexts, and enriches the set of policy tools we should consider. This evidence also suggests not only the need for dramatically new tools, but suggests small cost changes that may dramatically improve their efficacy of existing policies.

India’s policy to push rural banking lowered poverty

March 28, 2008

It is getting tough to write or cover research papers in detail because of the time constraint. So, I will just be pointing to the interesting research papers I have read till I can get some time to get back to detailed writing.

I came across this paperby Rohini Pande which shows how the policies to push rural banking between 1977 and 1990 led to lower poverty in rural areas.

We exploit the introduction and removal of a nation-wide bank branch licensing rule which sought to increase and equalize bank branch presence across Indian states to estimate the e¤ect of rural bank openings on poverty. Between 1977 and 1990, to qualify for a license to open a branch in a census location which already had one or more bank branches an Indian bank had to open four branches in locations with no bank branches. This policy caused banks to open relatively more rural branches in Indian states with lower initial .nancial development between 1977 and 1990. The reverse was true outside this period. We use these policy-induced trend reversals in the relationship between a state’s initial financial development and rural branch expansion as instruments for rural branch expansion and that rural branch expansion in India significantly reduced rural poverty.

This paper is a must read for all those constant Indian policy critics who believe Indian policies have done all things wrong. And that too it shows the rural bank push was beneficial when most believe it was detrimental. It will be interesting to get a paper criticising this paper as well.

Assorted Links

March 28, 2008

1. WSJ Blog points to lot of Fedspeak: Mishkin, Stern, Lockhart, Rosengren. It also points to how Bernanke’s research prepares him for the crisis.

2. Mankiw points to a article that grades Fed

3. Buiter points to new and old wisdom in finance

4. TTR comments on India’s saving and investment rates in future

5. Fin Prof points to a new paper on CEO compensation


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