The Economics of Rotating Savings and Credit Association: Evidence from Ethiopia

Using a unique individual level data on the membership of Rotating Savings and Credit Associations (ROSCAs) collected in 1994 from seven major urban centres in Ethiopia, we provide one of the few econometric tests of the economic theory of ROSCAs. In recognition of the heterogeneity of rosca types across space, we provide basic information about the characteristics of roscas in urban areas of Ethiopia. In addition, we use individual and household level data to describe the characteristics of both rosca participants and non-participants. The findings from the descriptive part of the analysis indicate that most of the rosca members are female, relatively richer and the major motive to join roscas is to buy consumer durables. For instance, Over 45% of households reported that they joined roscas with a purpose to buy durables. In terms of frequency of saving, most rosca members tend to save weekly and monthly, the latter being the predominant choice and a non-negligible amount is being mobilise through the informal institutions. The econometric evidence shows an inverse relationship between volume of rosca contribution and size of rosca as predicted by theory. In addition, we find an inverse relationship between frequency of rosca draw/saving and amount of saving. The welfare position of the household-food expenditure- has been found to be a significant determinant of the volume of rosca contribution but not the decision to join rosca. Most of our findings are consistent with findings elsewhere

Household-level Credit Constraints in Urban Ethiopia

Empirical evidence on determinants of credit constraints and the amount borrowed by urban household in Sub-Saharan Africa is almost non-existent. Using an extended direct approach by virtue of the unique data set we have (the Fourth Round Ethiopian Urban Household Survey), we analysed the determinants of credit constraints and the amount borrowed by urban households. We find a high percentage of credit-constrained households, the majority of which constitute discouraged borrowers. Discrete choice models that control for potential endogeneity and selectivity bias have been fitted to our data. Our analysis shows current household resources, number of dependants, and location as significant correlates.credit constrained households; credit rationing; endogeneity; instrumental variables; urban Ethiopia; Africa

State Dependence and Causal Feedback of Poverty and Fertility in Ethiopia

The paper implements simultaneous random effect models as a means to analyse causality issues related to poverty and fertility in Ethiopia, a country which is plagued by high and persistent poverty and very high fertility rates in rural areas. Using longitudinal data from both urban and rural areas of Ethiopia, we analyse the relationship between childbearing and poverty. In addition to identifying state dependence in poverty and fertility, we investigate to what extent fertility act as a feedback mechanism leading to higher poverty and vice versa. We find that poverty itself has little effect on fertility, whereas there is evidence of state dependence in poverty and important feedback from fertility on future poverty. Not unexpected, we find substantial differences between rural and urban areas.

Heterogeneity in returns to schooling: Econometric evidence from Ethiopia

The paper investigates whether returns to schooling in Ethiopia vary across the wages distribution of individuals. To do so it adopts an instrumental variables quantile regression framework that allows for both endogeneity of schooling resulting from unmeasured ability, and possible heterogeneity in the impact of schooling. The empirical estimates indicate that education contributes more to the earnings of the individuals at a lower end of the income distribution. Under the assumption that the wage and ability distributions are related, this result is consistent with the notion that education and ability are substitutes

Why use ROSCAs when you can use the banks? Theory and evidence from Ethiopia

Much of the existing literature on the use of informal credit arrangements such as ROSCAs (Rotating and Credit Saving Associations) theorises the use of such institutions as arising from market failures in the development of formal saving and credit mechanisms. As economic development proceeds, formal institutions might therefore be expected to displace ROSCAs. We show, using household data for Ethiopia, that in fact use of formal institutions and ROSCAs can co-exist, even in the same household. We examine usage of both formal and informal institutions across the household income gradient, and provide a theoretical model consistent with these empirical facts

Growth, volatility and education: panel evidence from developing countries

The investigation of the growth-volatility link is an important one in empirical macroeconomics. There is no empirical evidence supporting the predictions of recent theoretical models that incorporate and explicitly recognize the role of human capital in this link. The objective of the study is to examine whether the significance of volatility-growth relationship varies according to the average years of education. Using a panel data, we empirically show how the detrimental effect of output volatility on growth is diluted by education. The main contribution of our work is that while the level of volatility negatively affects growth, the effect is mediated via education. This is true even for countries with low as well as moderately high levels of volatility. This finding is consistent with Canton’s (2000) theoretical work. We also provide robustness checks and policy implications of our finding

Why use ROSCAs when you can use banks? Theory and evidence from Ethiopia

Much of the existing literature on the use of informal credit arrangements such as ROSCAs (Rotating and Credit Saving Associations) theorises the use of such institutions as arising from market failures in the development of formal saving and credit mechanisms. As economic development proceeds, formal institutions might therefore be expected to displace ROSCAs. We show, using household data for Ethiopia, that in fact use of formal institutions and ROSCAs can co-exist, even in the same household. We examine usage of both formal and informal institutions across the household income gradient, and provide a theoretical model consistent with these empirical facts

Poverty and Fertility in Less Developed Countries: A Comparative Analysis

Poverty and fertility are two important and closely related aspects of welfare. In this paper we use unique longitudinal data sources to study the relationship between poverty and fertility at household level in Albania, Ethiopia, Indonesia and Vietnam. These countries differ greatly in their history, average income, social structure, economic institutions and demographic features. We find that there is a substantial difference in the relative importance of the determinants of poverty dynamics and fertility; the persistence of high levels of fertility and poverty in Ethiopia is driven by lack of economic growth and poor access to family planning; education and health provision are crucial elements in reducing poverty and fertility, as is clear from Vietnam, Indonesia and Albania.