Thailand Flyin

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Thailand Fly-in
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Thailand ProjectEvaluation of Financial Systems

• Robert M. Townsend
• University of Chicago

Thailand Presentation 2002
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Outline

• General Equilibrium Theory for Entire Economies
• Aggregate Growth
• Growth and Inequality Structural Shifts
• Education
• Industrialization/ Occupation
• Financial Deepening
• Micro Underpinnings - Role of Institutions -
• Risk Sharing Commercial Banks
• Investment Efficiency BAAC
• Village Funds
• Informal Sector
• Imperfections Models -
• Default Repayment Data
• Moral Hazard Occupation Choice

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Income and Growth
Thailand Presentation 2002
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Concentration and Divergence
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Concentration Divergence
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Three Forces

• Industrialization / Occupation
• Financial Deepening
• Education

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Industrialization / Occupation
Thailand Presentation 2002
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Agriculture
Manufacturing
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Land Use 1979-1999
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Financial Access
Thailand Presentation 2002
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US Level
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Percent of Village with use of Commercial
Bank Credit Facility
Percent of Village with use of Commercial
Bank Credit Facility
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Percent of Villages with use of BAAC Credit
Facility
Percent of Villages with use of BAAC Credit
Facility
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Growth of BAAC Credit Branch Offices 1994
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Percent of Village with Availability of
Village Savings Fund
Percent of Village with use of Suppliers
Credit Facility
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Education
Thailand Presentation 2002
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Growth Accounting
Thailand Presentation 2002
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Figure 8 Comparison of Capital Output Ratio,
Capital Productivity, and TFP
TFP
Capital Output Ratio
Capital Productivity
Growth Accounting Capital Accumulation TFP
Figure 7 Comparison of Input Productivity
Capital
TFP
Labor
Land
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Growth with Inequality
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Stage 1
Stage 2
Stage 3
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Subgroup
Composition
Composition, Kuznets
Divergence
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Financial Crisis
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Web Page and Data Archive

• Thailand data - research data archive

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Lop Buri Fly-in
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IndustrializationOccupation Choice
Model
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Evaluation of Financial Liberalization A
general equilibrium model with constrained
occupation choice

• Xavier Giné and Robert M. Townsend
• University of Chicago

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Fig. 1A Business Entry
Entrepreneurship
Wealth
Cross Sectional Evidence
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2 Environment A Representative Model
-- Production
-- Talent Setup costs
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Profits
Finance Constraint
Occupation Choice
Dynamics Myopic Savings
? save ?
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Intermediated Sector
Neoclassical firm
Optimal inputs not wealth-dependent
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Estimation Two Data Sets
Table 1 MLE Results
Calibration
Cost of living ? Savings rate ? Subsistence
income growth rate ?gr
6.2.1 Initial Wealth Distribution
6.2.2 Calibration - The Metric
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Driving Engine
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Counterfactual Experiment
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Financial DeepeningEndogenous Selection
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Transitional Growth with Increasing Inequality
and Financial Deepening

• Robert M. Townsend and Kenichi Ueda

Model
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Wealth Constrained Choice
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3 Model - Environment
Objective Discounted Expected Utility Over
Infinite Horizon

• Technology Shocks
• ? safe return
• ? ? risky return
• Aggregate Idiosyncratic

Autarky Sector Isolated Households and Firms
Savings
Share in Risk Technology
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Non-convex Transaction Cost
No idiosyncratic shocks full risk sharing full
neoclassical, pick highest
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Non Concave Problem
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Calibration/Data Sources
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Solve for Policies
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Growth and Inequality Through the Lens of the
Models
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Explicit Tests of Micro Underpinnings and
Alternatives
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Safety Nets and Financial Institutions in the
Asian Crisis the Allocation of Within-Country
Risk

• Robert M. Townsend
• University of Chicago

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Household per capita consumption
Aggregate shock/residual consumption
Relative wealth
Changing demographic
Income on other shock
Time decreasing
Regression Equation
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Neoclassical Efficiency
Cash-flow effect
Underlying productivity/Tobins q
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Shocks
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Figure 3 Spatial Variation in 35-year Average
Annual Precipitation in Thailand
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Figure 4a 25-Class Land-Cover Images for
Lopburi
Land-cover classification 25 spectral classes
4,3,2 composite image
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Few Aggregate Shocks
Some Common Effects on Consumption
Investment
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Patterns by occupation more salient
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Shocks Within Occupation
Agricultural
Macro
Idiosyncratic
Macro
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Evaluation of Institutions
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Back to GIS
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Institutions How they work, Credit Contracts

• The credit risk-contingency system of an Asian
  development bank
• Robert M. Townsend
• and
• Jacob Yaron

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Less-than-perfect Risk SharingImperfect Credit
Markets

• Occupation Choice
• Loan Repayment Data

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Occupational Choice

• The Nature of Financial Constraints
  Distinguishing the Micro Underpinnings
• of Macro Models
• Anna L. Paulson
• Northwestern University
• and
• Robert M. Townsend
• University of Chicago

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Limited Commitment Collateral
3.1.1 Model 2 (EJ) Evans and Jovanovic
(1989), Holtz-Eakin, Joulfian and Rosen (1994)
As entrepreneurs, households can borrow up to
some fixed multiple of their total wealth, but no
more. Therefore the maximum amount that can be
invested in a firm is equal to ?A
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ex post shock
idiosyncratic talent
Neoclassical
As wage earners
rA
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Moral Hazard
Production with effort z, probability of ? success
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Wage Alternative
Talent
Utility consumption and leisure potentially
risk-averse
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Mechanism Design Problem
Controls contract
Expected utility
Respecting Mother Nature
Bank zero profit
Cost of funds
Payout, less insurance
Moral Hazard
Lottery
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Tables 3A B Model Comparison
(LEB) EJ Low wealth, NE ABL High wealth,
Central
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Examining the Financial Implications of the Models

• Borrowing should increase with wealth for
  constrained businesses (EJ) vs. decrease with
  wealth (ABL)

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Financial Contracts and Occupational Choice

• Alex Karaivanov

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Less Structured - Probit
Controls
Commercial bank -No
Perverse
Institutions
Collateralize loans?
Joint liability
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Using Repayment Data to Test Across Models of
Joint Liability Lending

• Christian Ahlin
• and Robert M. Townsend

• Stiglitz moral hazard, project choice
• Banerjee, Besley and Guinnane moral hazard,
  monitoring
• Besley and Coate default
• Ghatak adverse selection

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Internal Markets in Business Groups

• Krislert Samphantharak
• University of Chicago

Implications for Investment
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Central Group Chirathivat Family
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Selection Into Groups
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• Group
• Internal monitoring (costless)
• Perfect internal enforcement
• Risk sharing (project risk)
• Reallocation of labor in production
• Collusion against outsiders

• Individual/Relative
• Performance
• Individual moral hazard against lenders
• Nash/performance comparisons
• No collusion (as if could be prevented, not
  encouraged)

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2.2 Relative Performance Regime
Reservation trace out
One project, one agent -or- Principal directs
efforts on projects (via Nash)
Joint technologies allow correlation
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Group Regime
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Migration, Occupation Choice, and Endogenous
Industrial Organization

• Robert Townsend
• and
• Ned Prescott

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Credit Guarantee FundsDynamic Private
Information with Moral Hazard and Adverse
Selection
Robert Townsend and Matthias Deopke
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Conclusions

• General Equilibrium Theory for Entire Economies
• Aggregate Growth
• Growth and Inequality Structural Shifts
• Education
• Industrialization/ Occupation
• Financial Deepening
• Micro Underpinnings - Role of Institutions -
• Risk Sharing Commercial Banks
• Investment Efficiency BAAC
• Village Funds
• Informal Sector
• Imperfections Models -
• Default Repayment Data
• Moral Hazard Occupation Choice