The Impact of Household Credit on Consumption in Laos

This study evaluates the impact of credit on consumption in Laos. A two-stage selection bias correction method based on a multinomial logit framework is used to estimate and compare the consumption of borrowing households with and without credit. The results show that compared to what household consumption would have been without credit, borrowing households tend to have higher overall consumption. However, when consumption is disaggregated into food and nonfood, it is found that only formal credit has a positive impact on food spending. Borrowing from semiformal sources and informal sources without interest has a negative impact on food spending. For nonfood consumption, the impact of credit is found to be positive and statistically significant for all credit sources.