Rural Transformation, Inequality, and the Origins of Microfinance

79 Pages Posted: 20 Dec 2019

See all articles by Marvin Suesse

Marvin Suesse

New York University (NYU) - New York University Abu Dhabi

Nikolaus Wolf

Humboldt University of Berlin

Multiple version iconThere are 2 versions of this paper

Date Written: 2019

Abstract

What determines the development of rural financial markets? Starting from a simple theoretical framework, we derive the factors shaping the market entry of rural microfinance institutions across time and space. We provide empirical evidence for these determinants using the expansion of credit cooperatives in the 236 eastern counties of Prussia between 1852 and 1913. This setting is attractive as it provides a free market benchmark scenario without public ownership, subsidization, or direct regulatory intervention. Furthermore, we exploit features of our historical set-up to identify causal effects. The results show that declining agricultural staple prices, as a feature of structural transformation, leads to the emergence of credit cooperatives. Similarly, declining bank lending rates contribute to their rise. Low asset sizes and land inequality inhibit the regional spread of cooperatives, while ethnic heterogeneity has ambiguous effects. We also offer empirical evidence suggesting that credit cooperatives accelerated rural transformation by diversifying farm outputs.

Keywords: microfinance, credit cooperatives, rural transformation, land inequality, Prussia

JEL Classification: G210, N230, O160, Q150

Suggested Citation

Suesse, Marvin and Wolf, Nikolaus, Rural Transformation, Inequality, and the Origins of Microfinance (2019). CESifo Working Paper No. 7990. Available at SSRN: https://ssrn.com/abstract=3507261

Marvin Suesse (Contact Author)

New York University (NYU) - New York University Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

Nikolaus Wolf

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

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