Essays on Financial Inclusion and Small Firms Relationships in Emerging Economies

Abstract

The project is composed by three essays in development economics. All of them use applied microeconometric methods to pin down policy recommendations that help households and firms in developing countries to take advantage of available opportunities. The first two chapters aim to contribute in the understanding of the welfare implications of gaining access to financial services. First, I show that when Mexican low income household get access to formal credit, they reduce their participation in their social networks. They are less likely to receive money from their peers, even when they have been exposed to a negative idiosyncratic income shock. Results suggest that policies promoting universal access to financial services should be accompanied by an extension of the public safety net. Second, in the context of urban India, I show exploit a unique setting to show that access to microfinance might be an effective tool to overcome the social and cultural barriers that prevent women to participate in the labor force. The third project focus on understanding the efficiency gains coming from using long-term commercial relationships to sustain informal agreements. I study this in the context of the Peruvian anchovy fishery, in which small firms have no access to formal tools to coordinate their actions with buyers. First, I provide evidence that in a context of highly variable supply conditions, commercial partners draw upon relational contracts to effectively exchange supply and demand assurance. Next, I show that the use of these informal agreements imposes positive net externalities on those agents operating without them. Results suggest that the fraction of transactions mediated by relational contracts is privately but not socially efficient.