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Mobile Money, Trade Credit and Economic Development: Theory and Evidence

CentER Discussion Paper Series No. 2015-023

European Banking Center Discussion Paper No. 2015-005

50 Pages Posted: 2 Apr 2015  

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Haki Pamuk IV

Tilburg University

Ravindra Ramrattan

Tilburg University

Burak Uras

Tilburg University - Center for Economic Research (CentER); Tilburg University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2015

Abstract

Using a novel enterprise survey from Kenya (FinAccess Business), we document a strong positive association between the use of mobile money as a method to pay suppliers and access to trade credit. We develop a dynamic general equilibrium model with heterogeneous entrepreneurs, imperfect credit markets and the risk of theft to account for this empirical pattern. Mobile money dominates fiat money as a medium of exchange in its capacity to avoid theft, but it comes with higher transaction costs. The interaction between risk of theft and limited access to trade credit generates demand for mobile money as a payment method with suppliers and the use of mobile money in turn raises the value of a credit relationship and hence the willingness to apply for trade credit. Calibrating the stationary equilibrium to match a set of moments that we observe in FinAccess Business and quantifying the importance of the endogenous interactions between mobile money and trade credit on entrepreneurial performance and macroeconomic development, we find that the availability of the mobile money technology increases the macroeconomic output of the entrepreneurial sector by 0.33-0.47%.

Keywords: Money, Trade-Credit, M-Pesa, Allocations

JEL Classification: D14; G21; O12; O16

Suggested Citation

Beck, Thorsten and Pamuk, Haki and Ramrattan, Ravindra and Uras, Burak, Mobile Money, Trade Credit and Economic Development: Theory and Evidence (March 2015). European Banking Center Discussion Paper No. 2015-005. Available at SSRN: https://ssrn.com/abstract=2588392 or http://dx.doi.org/10.2139/ssrn.2588392

Thorsten Beck (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Haki Pamuk IV

Tilburg University ( email )

Ravindra Ramrattan

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

Burak R. Uras

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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