DeLoach, Smith-Lin ’15 author paper in the Journal of Development Studies

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Steve DeLoach, chair and professor of economics in the Martha and Spencer Love School of Business, and Elon alumna Marquessa Smith-Lin, co-authored a paper published in the Journal of Development Studies.

In “The Role of Savings and Credit in Coping with Idiosyncratic Household Shocks,” the authors examine the effect of access to formal banking services on households’ ability to smooth consumption in response to illness of adult workers.

The authors write, “One of the biggest challenges faced by those living in poverty is the ability to cope with adverse economic shocks. Among the most common of these shocks is the death or illness of an adult worker. In the face of such events, households are forced to make difficult choices in order to attempt to smooth current period consumption. Especially for the poor, these choices often come with substantial long-term economic costs.”

Using data from Indonesia, the authors found that when households experience a shock to the health of an adult member, they appear to smooth consumption regardless of access to formal financial institutions. While those without access to formal savings are less likely to fully smooth food consumption, the magnitude of the decrease appears quite small. However, smoothing consumption is achieved at the cost of substantially decreasing their assets. Those with access to formal savings, but without access to credit, experienced a smaller decrease in their asset holdings than those without access to formal savings.

Interestingly, those with access to both savings and credit smoothed consumption in a very different way, the authors report. Rather than drawing down on savings, these households significantly increased borrowing. These results offer valuable insights into the importance of access to formal banking, and to the way in which households use savings and credit when coping with unexpected health shocks.

Smith-Lin graduated from Elon in 2015 with a degree in international economics. While at Elon, the Honors Fellow and Lumen Scholar, researched how microfinance shapes financial investments among Indonesia’s poorest communities. DeLoach served as her thesis mentor.

Smith-Lin now works at Boston Private as the assistant vice president, specialty lending group.