THESIS
2016
xiv, 180 pages : illustrations ; 30 cm
Abstract
Chapter 1 provides a new explanation for the stronger relationship between income and subjective
wellbeing (SWB) found in cross-sectional versus panel studies based on the predictions of a rational
expectations model of utility maximization with permanent and transitory income shocks. The model
predicts that SWB is affected by unanticipated rather than anticipated income shocks, and is more
influenced by permanent rather than transitory income shocks. We confirm the model predictions
empirically by analyzing panel data from China, and show that differences in the relative importance of
permanent income can explain the stronger (weaker) impact of income often found in cross-sectional
(panel) estimation. We also empirically confirm asymmetric impacts of positive and negative transi...[
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Chapter 1 provides a new explanation for the stronger relationship between income and subjective
wellbeing (SWB) found in cross-sectional versus panel studies based on the predictions of a rational
expectations model of utility maximization with permanent and transitory income shocks. The model
predicts that SWB is affected by unanticipated rather than anticipated income shocks, and is more
influenced by permanent rather than transitory income shocks. We confirm the model predictions
empirically by analyzing panel data from China, and show that differences in the relative importance of
permanent income can explain the stronger (weaker) impact of income often found in cross-sectional
(panel) estimation. We also empirically confirm asymmetric impacts of positive and negative transitory
income shocks as predicted by a model with credit constraints.
Chapter 2 examines the role of liquidity constraint on migration by utilizing randomized access to credit.
With full labor mobility, microcredit may finance production inputs that increase household labor demand
and reduce migration. However, when migration is constrained by liquidity, access to credit may increase
both migration and household business activity, yielding greater potential income gains. This study
empirically examines the impacts of credit access on migration using data from a randomized control trial
for a village banking intervention in poor villages in rural China. Consistent with theoretical predictions, I
find that the program increases migration by members of treated households, in particular for households
in villages with lower average assets and facing higher migration costs.
Chapter 3 evaluates the impact of a randomized control trial (RCT) in China that introduced externally
funded village credit funds in poor, rural villages. In contrast to recent RCT-based studies that fail to find
evidence of significant income increases from microfinance interventions, we find that the Chinese
program significantly raises household incomes and reduces poverty. We assess possible explanations for
why estimated impacts may be greater in China: less access to formal credit prior to the program, higher
take-up rates, lump-sum repayment, and greater potential returns to off-farm employment opportunities
that are credit-constrained.
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