Occupation Choices and Education Investments: Unintended Effects of Microcredit

• Departmental Seminar

Date and Location

Wednesday, February 24, 2016, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

This paper demonstrates the existence of negative effects from microcredit on education outcomes. Among households that start a business as a result of the introduction of a microcredit lender, school enrollment for adolescents declines significantly. To understand the mechanisms driving this result, I develop and estimate a structural model of joint occupation and education choice with heterogeneous households that face frictions in the credit and labor market. Using data on the Thai Million Baht Village Fund program, I find that this quasi-experimental program induces increased self employment and decreased school enrollment among high productivity poor households, which has long-run implications for children’s future wage earnings. Their decreased enrollment is offset at the aggregate level by increased enrollment by less productive households. I show in counterfactual simulations that the former can be mitigated by making loans conditional on continued school enrollment. However, such policies must be carefully designed to allow borrowing by ultra-poor households whose children are already out of school.