Giving Credit Where it is Due

This paper demonstrates how the productive interplay of theory and experimental work helps understand credit markets in developing countries.

Current trends in development economics attempt to integrate theory and empirical practice. Further, experimental literature on credit markets in developing countries highlights connections between empirical research and theory. Descriptive facts motivated a body of theory, which in turned motivated experiments designed to test it. The paper states that:

• Development economics has re-emerged into the mainstream;
• Development economics offers opportunities to successfully integrate theoretical thinking and empirical testing;
• Thoughts about development and underdevelopment are based on credit market imperfections;
• Credit markets in developing countries provide facts that lead to the development of theories based on informational constraints and psychological limitations;
• These theories inspire empirical work that support them and influence policy thinking;
• Substantive two-way conversation between theory and data around credit markets in developing economies is a promising template for the field.