Kinship and Financial Networks, Formal Financial Access and Risk Reduction

Cynthia Kinnan and Robert M. Townsend. American Economic Review. Forthcoming.

Many risks are present in rural developing economies: illness, weather, the sudden need to finance an investment opportunity, etc. Yet for many households in rural developing economies, consumption and investment are insured against short-term, idiosyncratic risks to a large extent, despite limited availability of formal banking and insurance products. The importance of kinship networks in facilitating consumption smoothing and investment financing has been documented in many settings. Yet, while the importance of kinship networks and financial access are each increasingly well-documented, the channels through which these effects occur and the relationship between them are not well understood. Kinnan and Townsend use unique data from rural Thai households to examine this interplay. LINK