Three essays on development economics

This dissertation presents three self-contained essays on topics of development economics in the context of rural villages in Bangladesh. The first paper examines how availability of microfinance influences households’ borrowing from informal sources in village economies. It uses a unique household level panel data set, which spans more than two decades (1987–2008), from rural Bangladesh. We find that households’ access to microfinance reduces the incidence of borrowing from informal sources, but not the amount of borrowing. We find that less poor households benefit more in terms of reducing their reliance on informal borrowing and that the benefit accrues over time. We also find that having access to microfinance increases women’s informal borrowing for small consumption usage, without facilitating access to new business opportunities. In the second paper, we examine the post-disaster recovery process of households in the areas of rural Bangladesh that were affected by cyclone Aila in 2009–2010. Exploiting exogenous variation in households’ exposure to the disaster, we provide empirical evidence of efficient resource sharing within the household’s informal network of neighbours and relatives that assists in the household’s recovery from the natural disaster. We find the household’s own exposure to the disaster to have no significant effect on its investment and income, but we do find the exposure of the household’s network to have a significant effect on household investment and income two and a half years after the cyclone. We find that informal resource sharing within the household’s network crowded out the household’s need to take out formal insurance against disasters. Using experimental data on risk-taking and risk-sharing behaviours, we also find evidence that the household’s attitude to risk was not affected by the household’s, or its network’s, exposure to the disaster. Thus, the effect of the network’s exposure to disaster on the household income and investment can be attributed solely to the sharing of resources within the informal network. The third paper was motivated by previous studies in microfinance literature that suggested offering microcredit to women to empower them may be ineffective, as women borrowers hand over the control of loans to their husbands. We thus conduct a lab-in-the-field experiment to examine whether gender bias exists in intra-household decision making in rural Bangladesh. The experiment mimics a real-life scenario in which microcredit was offered to either the wife or the husband in a household and the borrower could decide whether to make his/her own investment choice or to transfer the decision making to his/her spouse. We find that women are more likely to let their spouses make decisions than their male counterparts. Different treatments in the experiment also allow us to test and quantify the underlying causes of the bias. Our findings suggest that women’s decision to transfer the decision making is driven both by their lower decision-making power and their belief that their spouses are more capable of making financial decisions. We also examine subjects’ control over the use of earnings from the investment and find no evidence for the positive impact of offering credit to women on their control over household expenditures