Borrowing from “Pui” to Pay “Pom”

Multiple Borrowing and Over-Indebtedness in Rural Thailand

authored by: Bezawit Beyene Chichaibelu, Hermann Waibel
Abstract: Rural financial markets have grown rapidly in Asian emerging market economies, thus contributing to economic development and the reduction of poverty. At the same time, however, the level of indebtedness of rural households has increased, making households more vulnerable to shocks. One of the reasons for rising household debt is the ease of borrowing simultaneously from a growing number of lending institutions. This paper addresses two major questions. First, does borrowing from multiple sources increase rural households’ risk of over-indebtedness? Second, do over-indebted rural households refinance their outstanding loans through multiple borrowing, running the risk of becoming trapped in a debt cycle? Employing a dynamic random effects bivariate probit model for a unique set of longitudinal household panel data from Northeast Thailand, this study examines the bidirectional relationship between over-indebtedness and multiple borrowing to determine to what extent rural households become trapped in debt cycles. On the one hand, the results indicate that households in Northeast Thailand take on multiple loans, which further increases their risk of becoming over-indebted. On the other hand, our model results do not confirm the widespread notion that over-indebted rural households use multiple loans to refinance unpayable debts.
Organisation(s): Institute of Development and Agricultural Economics
Type: Article
Journal: World Development
Volume: 98
Pages: 338-350
No. of pages: 13
ISSN: 0305-750X
Publication date: 10.2017
Publication status: Published
Peer reviewed: Yes
ASJC Scopus subject areas: Geography, Planning and Development, Development, Sociology and Political Science, Economics and Econometrics
Sustainable Development Goals: SDG 8 - Decent Work and Economic Growth
Electronic version(s): https://doi.org/10.1016/j.worlddev.2017.04.032 (Access: Closed)