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Microfinance and Home Improvement: Using Retrospective Panel Data to Measure Program Effects on Discrete Events

Sponsors: Thematic Group on Poverty Impact Analysis, Monitoring and Evaluation and the Thematic Group on Urban Land and Housing
Presenter: Professor Bruce Wydick, University of San Francisco
From a one-time cross-sectional survey, we create a retrospective panel data set based on the yearly timing of discrete upgrades in dwellings in the history of 218 Guatemalan households with access to microfinance. We use fixed effects estimation to analyze the timing of dwelling improvements such as the construction of cement block walls to replace adobe walls, cement floors to replace dirt floors, tiled roofs to replace corrugated iron roofs, and new purchases of land, relative to the timing of microfinance borrowing and the inflow of foreign remittances. We find that microfinance is associated with modest increases in the probability of dwelling upgrades, and that the magnitudes of these changes in the probability of home improvement are smaller than those realized after the inflow of foreign remittances. We develop a test for both demand-side and supply-side endogeneities in the timing of the geographical rollout of the credit program and borrowing decisions and present means to correct for them. The paper is attached.

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