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Does productive microcredit improve rural children's education? Evidence from rural Vietnam

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  • Phan, Chung Thanh
  • Sun, Sizhong
  • Zhou, Zhang-Yue
  • Beg, Rabiul
  • Ramsawak, Richard

Abstract

Whether increasing access to microcredit results in better educational outcomes for children’s education in rural areas remains an important but inconclusive topic in development literature. This paper contributes to this strand of research both theoretically and empirically. We develop a theoretical model where a representative household uses microcredit to fund its family business and maximises its lifetime utility. Based on the outcomes of its business, the parents make an optimal decision on the level of their children’s schooling investment. Solving the maximisation problem, we show that a household’s optimal education for its children is directly related to the level of microcredit. Empirically, we utilise the Vietnam Access to Resources Household Survey (VARHS) dataset from 2008 to 2016 to estimate the impact of microcredit on rural children’s schooling. We find that microcredit borrowing by rural households negatively affects their children’s education, which is more profound for boys than girls. Policymakers need to be aware of such side effects in designing microcredit policy and adopt auxiliary measures, such as incorporating a clause on children's education in the borrowing terms, to alleviate the negative impact on children’s educational outcomes.

Suggested Citation

  • Phan, Chung Thanh & Sun, Sizhong & Zhou, Zhang-Yue & Beg, Rabiul & Ramsawak, Richard, 2023. "Does productive microcredit improve rural children's education? Evidence from rural Vietnam," Journal of Asian Economics, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:asieco:v:84:y:2023:i:c:s1049007822001117
    DOI: 10.1016/j.asieco.2022.101555
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    More about this item

    Keywords

    Microcredit; Children’s education; Vietnam; VARHS; IV Poisson;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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