The Macroeconomics of Microfinance

FRB of St. Louis Working Paper No. 2013-034A

43 Pages Posted: 6 Nov 2013

See all articles by Francisco J. Buera

Francisco J. Buera

Washington University in St. Louis; National Bureau of Economic Research (NBER)

Joseph P. Kaboski

Ohio State University (OSU) - Economics; National Bureau of Economic Research (NBER); University of Notre Dame - Department of Economics

Yongseok Shin

Washington University in St. Louis - Department of Economics; National Bureau of Economic Research (NBER); Federal Reserve Banks - Federal Reserve Bank of St. Louis

Multiple version iconThere are 2 versions of this paper

Date Written: February 29, 2012

Abstract

We provide a quantitative evaluation of the aggregate and distributional impact of microfinance or credit programs targeted toward small businesses. We find that the redistributive impact of microfinance is stronger in general equilibrium than in partial equilibrium, but the impact on aggregate output and capital is smaller in general equilibrium. Aggregate total factor productivity (TFP) increases with microfinance in general equilibrium but decreases in partial equilibrium. When general equilibrium effects are accounted for, scaling up the microfinance program will have only a small impact on per-capita income, because the increase in TFP is counterbalanced by lower capital accumulation resulting from the redistribution of income from high-savers to low-savers. Nevertheless, the vast majority of the population will be positively affected by microfinance through the increase in equilibrium wages.

Keywords: microfinance, entrepreneurship, general equilibrium effect

JEL Classification: G21, O11, O16

Suggested Citation

Buera, Francisco J. and Kaboski, Joseph P. and Shin, Yongseok, The Macroeconomics of Microfinance (February 29, 2012). FRB of St. Louis Working Paper No. 2013-034A. Available at SSRN: https://ssrn.com/abstract=2350287 or http://dx.doi.org/10.2139/ssrn.2350287

Francisco J. Buera

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joseph P. Kaboski

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
1945 N. High St.
Columbus, OH 43210-1172
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

Yongseok Shin (Contact Author)

Washington University in St. Louis - Department of Economics ( email )

One Brookings Drive
St. Louis, MO 63130
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

P.O. Box 442
St. Louis, MO 63166-0442
United States

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