Microcredit and Household Consumption

Abstract

The main purpose of writing this report was to analysis the positive and negative effects of microcredit over household consumption. In addition, to see the side effects created through high household consumption, which leads either increase or decrease over remittance, environmental quality, foreign development investments and financial development. I considered microcredit loans as the independent variable and the rest of them as dependent variable on it. There were a neutral effect over the countries I have analyzed to understand that if microcredit actually reduces poverty or not. The main improvement has seen over the agricultural and retail sector. It also enhanced women empowerment in various countries. I have described the abbreviations of panel unit root test, pedroni panel cointegration test, auto regression- distribution lag model and panel causality test by toda and yamamoto model. Thus, the data analysis have done firstly, through the panel- unit root test, which showed stationary at level. Secondly, cross sectional dependency test stated that there is a dependency over each of the variables in between. Thirdly, panel cointegration model showed long run relationship between household consumption, microcredit and remittance inflow. We observed that, all the test statistics are significant, either 5% or 1%. Therefore, we can include that there is a distant future connection between microcredit, household consumption and remittance inflow. Then I have used the base line estimation model, which was divided into three consecutive tests namely, OLS; random effect and fixed effect model. Most of the results here showed to have negative impact of household consumption. That means it could not create a greater impact over the rest of the dependent variables (remittance, financial development, foreign development investment and environmental quality). In case of autoregressive estimation model we have found that, the constants of every test were positive, only two tests of remittance and three tests of foreign direct investment have effected by the increase of microcredit and household consumption in a productive way in the long- run. Other than that, two tests of financial development and two from the remittance remained positive, in case of short- term. The last test was causality test stated that, impact on household consumption has conducted productively by microcredit, remittance, financial development, foreign development investment and environmental quality. The stationary effect is at level in each of the variables.