A growing share of the world population is getting access to a formal bank account. This allows a move from cash to account based payments. Grounding our hypothesis in behavioral economics, we conjecture that being paid on an account instead of in cash can play a major role in encouraging savings. When paid on the account, the money is saved by default, while - as long as payments are done in cash - the money is ready to be spent. We test our hypothesis in rural India, with villagers who either had an account, or were asked to open one. They received weekly payments of Rs 150 for about 10 consecutive weeks. We randomly allocated them to being paid on the account (treated) or in cash (control). We found that the treatment increases the account balance by about 110 percent, and that the effect is long lasting. The control villagers do not save more in other assets, but increase their expendi- tures on regular consumption items. We exclude two alternative mechanisms that could explain the result. First, using lab in the field games, we show that the treatment does not enhance the trust in or empathy towards the banker. Second, we provide evidence against the treated having developed an active savings habit on the account: they behave like the control, when we switch from account to cash payments.
This paper develops a model with sequential production stages and international trade frictions that permits an analysis of how decreases in trade costs shape the interdependence between countries, with special focus on the joining and industrialization pattern of developing countries into the global value chains (GVCs). I show that in a two-country setting, a decrease in trade costs of intermediates is associated with South moving up the value chain and both North and South experiencing welfare improvement, combined with a non-linear wage response. Then I extend the model into a multi-country setting with two simple thought experiments. I show that when global trade frictions fall, South countries join supply-chain networks due to wage differentials and low trade costs; this increases the North wage but may decrease the wages of an insider South. In addition, “Factory South” are regionally clustered. The model provides a first look at GVCs from the development angle, and raises several interesting policy concerns regarding GVC governance.
This paper shows that debt crises do not always have a fiscal nature and suggests that fiscal retrenchment may not be the optimal response to a crisis that did not originate from irresponsible fiscal policies. The paper starts by discussing the origin of debt crises and the unexplained part of public debt and for avoiding debt explosions linked to financial crises or poor debt management. The paper concludes with a discussion on liquidity and solvency crises.
