MIT Libraries logoDSpace@MIT

MIT
View Item 
  • DSpace@MIT Home
  • MIT Open Access Articles
  • MIT Open Access Articles
  • View Item
  • DSpace@MIT Home
  • MIT Open Access Articles
  • MIT Open Access Articles
  • View Item
JavaScript is disabled for your browser. Some features of this site may not work without it.

Wealth accumulation and factors accounting for success

Author(s)
Pawasutipaisit, Anan; Townsend, Robert
Thumbnail
DownloadTownsend_Wealth accumulation.pdf (992.9Kb)
OPEN_ACCESS_POLICY

Open Access Policy

Creative Commons Attribution-Noncommercial-Share Alike

Terms of use
Creative Commons Attribution-Noncommercial-Share Alike 3.0 http://creativecommons.org/licenses/by-nc-sa/3.0/
Metadata
Show full item record
Abstract
We use detailed income, balance sheet, and cash flow statements constructed for households in a long monthly panel in an emerging market economy, and some recent contributions in economic theory, to document and better understand the factors underlying success in achieving upward mobility in the distribution of net worth. Wealth inequality is decreasing over time, and many households work their way out of poverty and lower wealth over the seven year period. The accounts establish that, mechanically, this is largely due to savings rather than incoming gifts and remittances. In turn, the growth of net worth can be decomposed household by household into the savings rate and how productively that savings is used, the return on assets (ROA). The latter plays the larger role. ROA is, in turn, positively correlated with higher education of household members, younger age of the head, and with a higher debt/asset ratio and lower initial wealth, so it seems from cross-sections that the financial system is imperfectly channeling resources to productive and poor households. Household fixed effects account for the larger part of ROA, and this success is largely persistent, undercutting the story that successful entrepreneurs are those that simply get lucky. Persistence does vary across households, and in at least one province with much change and increasing opportunities, ROA changes as households move over time to higher-return occupations. But for those households with high and persistent ROA, the savings rate is higher, consistent with some micro founded macro models with imperfect credit markets. Indeed, high ROA households save by investing in their own enterprises and adopt consistent financial strategies for smoothing fluctuations. More generally growth of wealth, savings levels and/or rates are correlated with TFP and the household fixed effects that are the larger part of ROA.
Date issued
2011-03
URI
http://hdl.handle.net/1721.1/61957
Department
Massachusetts Institute of Technology. Department of Economics
Journal
Journal of Econometrics
Publisher
Elsevier B.V.
Citation
Pawasutipaisit, Anan, and Robert M. Townsend. “Wealth accumulation and Factors accounting For Success.” Journal Of Econometrics 161.1 (2011) : 56-81.
Version: Author's final manuscript
ISSN
0304-4076

Collections
  • MIT Open Access Articles

Browse

All of DSpaceCommunities & CollectionsBy Issue DateAuthorsTitlesSubjectsThis CollectionBy Issue DateAuthorsTitlesSubjects

My Account

Login

Statistics

OA StatisticsStatistics by CountryStatistics by Department
MIT Libraries
PrivacyPermissionsAccessibilityContact us
MIT
Content created by the MIT Libraries, CC BY-NC unless otherwise noted. Notify us about copyright concerns.