TY  - JOUR
AU  - Breza, Emily
AU  - Kinnan, Cynthia
TI  - Measuring the Equilibrium Impacts of Credit: Evidence from the Indian Microfinance Crisis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 24329
PY  - 2018
Y2  - February 2018
DO  - 10.3386/w24329
UR  - http://www.nber.org/papers/w24329
L1  - http://www.nber.org/papers/w24329.pdf
N1  - Author contact info:
Emily Breza
Harvard University
Littauer Center, M28
1805 Cambridge Street
Cambridge, MA 02138
Tel: 617-496-9589
E-Mail: ebreza@fas.harvard.edu

Cynthia Kinnan
Department of Economics
Tufts University
8 Upper Campus Road
Medford, MA 02155
Tel: 617-627-3138
Fax: 617-627-3917
E-Mail: cynthia.kinnan@tufts.edu
AB  - In October 2010, the state government of Andhra Pradesh, India issued an emergency ordinance, bringing microfinance activities in the state to a complete halt and causing a nation-wide shock to the liquidity of lenders, especially those with loans in the affected state. We use this massive dislocation in the microfinance market to identify the causal impacts of a reduction in credit supply on consumption, earnings, and employment in general equilibrium in rural labor markets. Using a proprietary district-level data set from 25 separate, for-profit microlenders matched with household data from the National Sample Survey, we find that district-level reductions in credit supply are associated with significant decreases in casual daily wages, household wage earnings and consumption. We find a substantial consumption multiplier from credit that is likely driven by two channels – aggregate demand and business investment. We calibrate a simple two-period, two-sector model of the rural economy that incorporates both channels and show that the magnitude of our wage results is consistent with the model’s predictions.
ER  -