Village Economic Accounts: Real and Financial Intertwined
Using the household panel data from Townsend Thai data, we create the economic and balance of payments accounts for a set of villages in rural and semi-urban areas of Thailand. We then study these village economies as small open countries, as in international economics, exploring in particular the relationship between the real (production and trade) and financial (credit and financial flows) variables. We examine inter-village risk-sharing and the Feldstein-Horioka puzzle. Our results suggest that within-village consumption-against-income risk-sharing is better that across-village and, while there is smoothing in both, the mechanisms are different. We also find that, unlike countries, the cross-village capital markets, for investment, are highly integrated. In the conclusion, we touch on factor-price equalization, trade, and financial frictions.