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What Can We Learn about Financial Access from U.S. Immigrants?. by Una Okonkwo Osili and Anna Paulson Discussion by Inessa Love. Institutions, Perceptions, and Access. Two sides of Institutions: Formal/Reality: Facts, i.e. How do banks work?

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What Can We Learn about Financial Access from U.S. Immigrants?

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What can we learn about financial access from u s immigrants

What Can We Learn about Financial Access from U.S. Immigrants?

by Una Okonkwo Osili and Anna Paulson

Discussion by Inessa Love


Institutions perceptions and access

Institutions, Perceptions, and Access

  • Two sides of Institutions:

    • Formal/Reality: Facts, i.e. How do banks work?

    • Informal/Perceptions: What do I believe about them?

  • Experiment:

    • Holding Reality constant, How do Informal constraints (i.e. my perceptions about how the banks work) affect my participation in Financial Markets?

  • Conclusion:

    • Perceptions matter.

    • Perceptions are influenced by home country institutions.

    • Perceptions are important for understanding the impact of reform.


Underlying assumptions

Underlying Assumptions

  • Supply is the same

    • Same institutional environment in the US

  • Demand is the same

    • Personal characteristics capture individual’s demand for financial products

  • Selection issues

    • People who immigrate might be different

    • Control with Country Fixed Effects


Assumption of equal supply

Assumption of Equal Supply

  • Assume that immigrants from different countries face the same institutional environment because they all live in the US.

  • Ethnic communities and banking costs

    • Bank branches in ethnic communities

    • Cost of opening accounts

    • Ethnic discrimination

  • Perhaps not a first-order effect, but would be curious to know.


Assumption of equal demand

Assumption of Equal Demand

  • Do we capture all the differences in demand with personal characteristics?

    • People’s ability, “entrepreneurial” spirit

    • More informal “cash” based economies

  • What about alternative sources of savings or investment: informal networks or home-country investment?

    • Control for this with Ethnic concentration, but only at the MSA level

  • The paper finds that in highly ethnically concentrated communities there is less access on average (Table 6).

    • Is this because of different supply or different demand?


Selection country fixed effects

Selection: Country Fixed Effects

  • Is unobserved ability correlated with home-country institutions?

  • Define “new measure of institutional quality”

    “Home country “MSA’s Ethnic

    Institutions ” * concentration”

    • Use Ethnic concentration as capturing “enforcement” of home-country institutions.

  • Home country institutions are more important for immigrants who tend to live in ethnic clusters

    • Home-country rules are more enforced or

    • Assimilation into US culture is slower in concentrated communities

  • Does it help if unobserved ability is correlated with demand for financial services?


Perceptions vs reality

Perceptions vs. Reality

  • What comes first?

  • Reality  Perceptions

    vs.

  • Perceptions Reality


Causality

Causality?

Reality of home country institutions 

Perceptions about institutions (Trust)

Use of financial services in the US.

Vs.

Perceptions about institutions (Trust)

Reality:

Institutions

in Home Country

Perceptions

(TRUST)

Reality:

Use of Financial

Services in the US

Reality:

Institutions

in Home Country

Perceptions

(TRUST)

Reality:

Use of Financial

Services in the US


Small empirical issues

Small empirical issues

  • Controlling for individual’s demand:

    • 4 years of data – use time dummies?

    • Ethnicity is only “non-white” dummy

    • Include occupation in the main results (more detail?)

    • Self-employed?

    • Include Ethnic Concentration in the main results

  • Country-level measures:

    • Why use measure of risk of expropriation of private foreign investment?

    • Why not use LOG of GDP PC?

    • Why not use more straightforward measures of financial development?

    • Control for history of bank crises and bank runs in home country and presence of deposit insurance (a more direct measures of the mistrust for banks).

    • Other measures of culture – i.e., Trust.


Policy implications

Policy Implications

  • Why bother reforming institutions?

  • What is the magnitude of the effect of formal institutions vs. informal perceptions?

  • Is this a first-order effect?

Mexican in Mexico

Mexican in US

Native Born


Access vs usage

Access vs. Usage

  • These people have access but choose not to use financial services

  • Access ≠ Usage

  • Better Institutions  Less Difference

  • Will overestimate the impact of institutions on Access if we use Usage as proxy for access

Access

Usage

Institutions


How to change perceptions

How to Change Perceptions?

  • Interactions are interesting:

    • Education reduces “misperception”

    • High-skill occupation eliminates “misperception”

    • Citizenship (i.e. formality) has little effect

  • Any policy interventions?

    • Financial Literacy

  • Perceptions are important in understanding the impact of reform.


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