The impacts of credit on village economies

This paper evaluates the short-term impact of Thailand's 'Million Baht Village Fund' program, among the largest scale government microfinance initiatives in the world, using pre-and post-program panel data and quasi-experimental cross-village variation in credit-per-household. We find that the village funds have increased total short-term credit, consumption, agricultural investment, income growth (from business and labor), but decreased overall asset growth. We also find a positive impact on wages, an important general equilibrium effect. The findings are broadly consistent qualitatively with models of credit-constrained household behavior and models of intermediation and growth. Keywords: microfinance, finance and growth, credit constraints. JEL Classifications: O1, E2.