Kinship and Financial Networks, Formal Financial Access, and Risk Reduction
Cynthia Kinnan, Robert Townsend
American Economic Review · 2012 · Volume 102 · Issue 3
Abstract
Kinship networks are beneficial for smoothing consumption and investment, but the channels are not well understood. We study the financing devices used for consumption and investment by Thai households. Households that are connected to banks achieve significantly better consumption smoothing than unconnected households; indirect connections via inter-household borrowing are as effective as direct borrowing. Investment appears to be facilitated by kinship: households with kin in the village display reduced sensitivity of investment to income, while connections to banks do not significantly reduce sensitivity. Kin may act as "implicit collateral," permitting borrowing that would violate repayment constraints in its absence.
Keywords
Economic Sociology, Economic Anthropology, Social and Economic Stratification, Personal Finance, Microeconomic Analyses of Economic Development, Economic Development: Financial Markets, Saving and Capital Investment, Corporate Finance and Governance, Economic Development: Urban, Rural, Regional, and Transportation Analysis, Housing, Infrastructure
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