The research describes methods for the evaluation of financial systems in developing countries. The focus is on the relationship of financial institutions, financial markets, and government financial-sector policy to growth, inequality, and poverty reduction. The featured country is Thailand, but the research develops methods of analysis that are applicable to India, China, Vietnam, Mexico and other emerging market economies, giving this work broader impact. The research interest centers on the natural evolution of institutions and markets and also the impact of policy. There is an in-depth analysis of Thailand where much of the requisite data have been collected and assembled, and many aspects of the analysis are implemented.
A repeated theme is the view of the macro economy as an integrated whole with realistic and explicit micro foundations. The decision problems of individuals, households, and firms are made explicit, frequently with transaction costs and obstacles to trade, then added up to deliver a coherent picture of kinship networks, village, and regional economies as part of the larger national economy. The focus is on the financial system but this means not only credit (borrowing, lending, saving) but also insurance (shocks and the re-allocation of risk). Major formal financial institutions include commercial banks and government development banks, but the analysis includes the informal sector (friends, family, money lender, trader, store owner, etc.). Entire economies are understood through applied general equilibrium analysis.
The methods range from structural models to reduced form econometric impact equations. In between lie data tabulations, non-parametric methods, and efforts to provide some unity across these diverse approaches. The data come from the principal investigator's own field research over many years with separate annual and monthly panels, expanded from villages in four provinces to four additional provinces, and to towns and cities.
Policies to be analyzed include interest rate subsidies, government transfers to public banks, branching and the establishment of new village-level funds, enhanced collateralization, joint liability groups, micro credit, and variation in methods of lending. The goal at the micro level is to assess the distribution of gains and losses to financial sector policy and policy change, and at the macro level to assess the impact on growth, inequality, and poverty reduction.
PhD students from Chicago and other universities are well integrated into the research, first in the classroom, and then as valuable research assistants and collaborators. Undergraduates from Chicago and other universities also contribute as summer interns, part time assistants, or full time RA's before entering graduate work. Women and minorities in the US and aboard play a key part. A field research, infrastructure unit with anthropological, geographic and ecologic components would be continued in Bangkok with subunits in the provinces. Enumerators include women and minority language groups (Khmer, Lao), and include current and future Thai students, some of whom visit the US for training (and US students visit Thailand). In addition, the data base/research archive with GIS functionality, including all major socioeconomic, firm, and macroeconomic data, and a University of Chicago-UTCC Research Center in Bangkok enhance infrastructure for research and education and facilitate dissemination. Seminars and collaboration in Thailand, Mexico, India and Cambodia, the IMF, the IADB, the World Bank and United Nations influence the formulation of public policy.
