UCLA

This dissertation describes the functioning of credit markets in both developed and developing nations, and provides empirical evidence on the relevance of such markets to the real economy.

In Chapter 1, I empirically analyze the unintended effects of microlending on children's test scores and time allocation. By making credit available to poor entrepreneurs, microlending has the potential to increase the borrower's opportunity cost of participating in other activities, including household activities and parental involvement. To identify the causal effects, I explore the variation in the expansion of the largest microlending program in Brazil, that occurs over the years and across municipalities. More specifically, I rely on a unique feature that arbitrarily prevented the program from operating beyond certain boundaries within that country. I find that children in different grades are affected differently. Fifth graders underperform in standardized math exams and are less likely to work hard in their homework assignments. Their parents are also less likely to attend parent-teacher meetings at school. Ninth graders spend more time in household chores on a typical school day, but that does not necessarily translate into worse test scores. But otherwise, I do not find any impact on dropout rates in these grades.

In Chapter 2, I explore rainfall fluctuations in Brazil to measure the long-term effects of early life conditions on entrepreneurial productivity. I focus on the performance of low-income entrepreneurs, who are also borrowers from the largest microlender in that country. I match newly collected individual-level administrative data from the microlending institution to their clients' year, month, and municipality of birth data on rainfall. Thus, through the date and place of birth, I am able to link the prevailing weather conditions, specifically water scarcity, during the entrepreneur's in utero and early life, to the performance of his business during adulthood. I find that being exposed to a drought is associated with about 2 percent lower revenue.

Chapter 3 describes the role of credit markets predicting recessions in the United States. Key financial variables, such as the prices of financial instruments, are commonly associated with expectations of future economic events. During periods of credit market turmoil, financial asset prices are especially informative of linkages between the real and financial sides of the economy: Movements in asset prices can provide early warning signals for such economic downturns. In this chapter, I analyze the predictive content of real stock returns, term spreads and credit spreads. Using dynamic probit models to forecast the real economy fluctuations, I show that credit spreads are an important predictors of future recessions, in particular, of the sharp decline in 2008. I also confirm that term spreads are the primary predictive variables.