Impact of Access to Credit on Labor Allocation Patterns in Malawi

Summary

This paper uses data from the Malawi Financial Markets and Household Food Security survey to examine the impact of gendered access to credit on labor allocation patterns within the household. The paper corrects for potential endogeneity of access to credit in the estimations. Access to credit relies on the credit limit concept. Thus, an individual has access to credit from a particular source if he/she is able to borrow a positive amount from that source. Results suggest that the impact of access to credit depends upon both the gender of the recipient and whether it is formal or informal credit.

Introduction

It is well established in the literature that the unitary model of the household does not fully explain decision-making processes within the household. This has led to the development of alternative models to explain household decision-making processes by paying careful attention to the differing roles, responsibilities, rights, and resources of individuals, mainly men and women, within the household.¹ While the concept of bargaining power is central to the collective models, the notion of power however is multidimensional and not easily amenable to quantification or measurement (Quisumbing, 2003).

Empirical studies that have tested for the validity of the collective model against the unitary model have used a range of economic measures as proxies for bargaining power on a range of household outcomes.² The results of tests indicate that differential control over resources has different impacts on the welfare of household members. Amongst other factors women’s labor market participation is also considered a key factor in improving women’s bargaining power. A recent study in Bangladesh shows that women’s earned income is more critical to enhancing their bargaining power than women’s unearned income (Anderson & Eswaran, 2008). A gender assessment undertaken for Malawi concludes that women’s earning capacity and consequently, their ability to contribute to household expenditure, has the potential to influence their bargaining power (Statistics Norway, 2007). Given the importance of women’s work choices for bargaining power, this paper investigates the role of credit access as a factor in determining their work decisions. Specifically, we examine whether there exists a gendered impact of access to credit on labor allocation patterns within a household. We also test and correct for potential endogeneity of access to credit in our models.

The literature on microfinance is largely dominated by studies evaluating the effects of microcredit programs in Bangladesh, of which the Grameen Bank is the most famous example.³ There are relatively few studies that examine the gendered impact of credit in Sub-Saharan Africa. This paper fills a gap in that respect by examining the gendered impact of access to both formal and informal credit in Malawi. Given the recent attention microcredit is receiving in the popular press, it is particularly relevant to examine the impact of having access to credit on men and women. The article is organized as follows. Section 2 briefly discusses access to credit and labor allocation patterns. Section 3 describes the data and estimation methodology. Section 4 discusses the results and Section 5 concludes.