Investigation of Household Debt through Multilevel Multivariate Analysis: Case of a Developing Country
DOI:
https://doi.org/10.6000/1929-7092.2018.07.26Keywords:
Debt decision, multilevel model, households, Pakistan.Abstract
This study focuses on investigating the relationships between different socioeconomic and demographic characteristics and households’ debt decision and demand. We used six survey rounds of data from Pakistan household integrated expenditure survey (HIES) 2001 to 2014. HIES is a nationally representative data collected by Pakistan Bureau of Statistics. Multilevel models were used to investigate the relationship in which the data on households was nested in primary sampling units (PSUs) and PSUs were nested in provinces. The decision of taking household debt varies 22% at PSU level and 18% at provincial level due to unobserved variables. We found that households having higher financial assets, higher income and larger household sizes tend to have a higher percentage of debt. The amount of debt also increases with education and age. In the case of demand for debt, the variation is 12% at the provincial level. Literature studying household debt decision in Pakistan often ignore the geographical differences (region/province specific studies). Considering socioeconomic characteristics habituating the usage of credit is of countless importance in guiding policy design and interventions that aim to improve financial inclusion.
References
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https://doi.org/10.1111/deve.12106
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https://doi.org/10.1111/etap.12108
Anwar, Talat, Sarfraz K. Qureshi, Hammad Ali, and Munir Ahmed. 2004. ""Landlessness and Rural Poverty in Pakistan [with Comments]."" The Pakistan Development Review 43(4):855-74.
Arpino, Bruno, and Arnstein Aassve. 2014. ""The Role of Villages in Households’ Poverty Exit: Evidence from a Multilevel Model for Rural Vietnam."" Quality & Quantity 48(4):2175-89.
https://doi.org/10.1007/s11135-013-9885-6
GoP. 2013. ""Household Integrated Expenditure Survey 2011-12"". Pakistan Bureau of Statistics, Statistics division, Islamabad, Pakistan. Retrieved from http://www.pbs.gov.pk/content/ household-integrated-economic-survey-hies-2011-12.
Banks, James, Zoë Smith, and Matt Wakefield. ""The distribution of financial wealth in the UK: evidence from 2000 BHPS data."" Working Paper No. W02/21 London: Institute for Fiscal Studies. Retrieved from https://www.ifs.org.uk/wps/ wp0221.pdf
Bertola, Giuseppe, Richard Disney, and Charles B. Grant. 2006. The economics of consumer credit. Cambridge: Mit Press.
Brown, S., & Taylor, K. 2008. Household debt and financial assets: evidence from Germany, Great Britain and the USA. Journal of the Royal Statistical Society: Series A (Statistics in Society) 171(3): 615-643.
https://doi.org/10.1111/j.1467-985X.2007.00531.x
Bullen, Nina, Kelvyn Jones, and Craig Duncan. 1997. Modelling complexity: analysing between-individual and between-place variation-a multilevel tutorial. Environment and Planning A 29(4): 585-609.
https://doi.org/10.1068/a290585
Chen, Zibei and Minchao Jin. 2016. (2016). Financial Inclusion in China: Use of Credit. Journal of Family & Economic Issues 38(4): 528-540.
https://doi.org/10.1007/s10834-017-9531-x
Crook, Jonathan. 2006. ""Household Debt Demand and Supply: A Cross-Country Comparison."" Pp. 63-92 in The economics of consumer credit, edited by G. Bertola, R. Disney and C. Grant.
Del-Río, Ana, and Garry Young. 2005. ""The Determinants of Unse-cured Borrowing: Evidence from the British Household Panel Survey."" Bank of England. Quarterly Bulletin 45(2):187.
https://doi.org/10.2139/ssrn.824164
Duca, John V., and Stuart S. Rosenthal. 1993. ""Borrowing Constraints, Household Debt, and Racial Discrimination in Loan Markets."" Journal of Financial intermediation 3(1):77-103.
https://doi.org/10.1006/jfin.1993.1003
Fabbri, Daniela, and Mario Padula. 2004. ""Does Poor Legal Enforcement Make Households Credit-Constrained?"". Journal of Banking & Finance 28(10):2369-97.
https://doi.org/10.1016/j.jbankfin.2003.09.009
Fielding, Antony. 2004. ""Scaling for Residual Variance Components of Ordered Category Responses in Generalised Linear Mixed Multilevel Models."" Quality and Quantity 38(4):425-33.
https://doi.org/10.1023/B:QUQU.0000043118.19835.6c
Gelman, Andrew, and Jennifer Hill. 2007. ""Data Analysis Using Regression and Multilevel Hierarchical Models"". Vol. 1. New York: Cambridge University Press.
Godwin and Deborah D. 1998. ""Household Debt Quintiles: Explaining Changes 1983–1989."" Journal of Consumer Affairs 32(2):369-93.
https://doi.org/10.1111/j.1745-6606.1998.tb00414.x
Gregorio, José De and Jong–Wha Lee. 2002. ""Education and Income Inequality: New Evidence from Cross-Country Data."" Review of Income and Wealth 48(3):395-416.
https://doi.org/10.1111/1475-4991.00060
Grilli, Leonardo, and Carla Rampichini. 2015. ""Specification of Random Effects in Multilevel Models: A Review."" Quality & Quantity 49(3):967-76.
https://doi.org/10.1007/s11135-014-0060-5
Kim, Haejeong, and Sharon A. DeVaney. 2001. ""The Determinants of Outstanding Balances among Credit Card Revolvers."" Journal of Financial Counseling and Planning 12(1):67-79.
Ladas, Alexandras, Jonathan Garibaldi, Rodrigo Scarpel, and Uwe Aickelin. 2014. ""Augmented Neural Networks for Modelling Consumer Indebtness."" Pp. 3086-93 in Neural Networks (IJCNN), 2014 International Joint Conference on: IEEE.
https://doi.org/10.1109/IJCNN.2014.6889760
Leonard, Tammy, and Wenhua Di. 2014. ""Is Household Wealth Sustainable? An Examination of Asset Poverty Reentry after an Exit."" Journal of Family and Economic Issues 35(2):131-44.
https://doi.org/10.1007/s10834-013-9357-0
Li, Wei and Laurie Goodman. 2015. ""Americans’ Debt Styles by Age and over Time."" Retrieved from http://urbn.is/29EOqUD.
Littlefield, Elizabeth, Jonathan Morduch and Syed Hashemi. 2003. ""Is Microfinance an Effective Strategy to Reach the Millennium Development Goals?"" Focus Note 24(2003):1-11. Retrieved from http://s3.amazonaws.com/academia.edu.documents/ 8384719/mf-mdgs-morduch.pdf?AWSAccessKeyId=AKIAJ56 TQJRTWSMTNPEA&Expires=1477544447&Signature=Y%2FDVIdroRMYfOcgBaggYhDTiEk0%3D&response-content-disposition=inline%3B%20filename%3DIs_microfinance_an_effective_strategy_to.pdf.
Livingstone, Sonia M., and Peter K. Lunt. 1992. ""Predicting Personal Debt and Debt Repayment: Psychological, Social and Economic Determinants."" Journal of economic psychology 13(1):111-34.
https://doi.org/10.1016/0167-4870(92)90055-C
Magri, Silvia. (2002). ""Italian households' debt: determinants of demand and supply"". Temi di discussione 454. Retrieved from http://www.bancaditalia.it/pubblicazioni/temi-disc%20...%200454/tema_454_02.pdf
Modigliani, Franco. 1986. ""Life Cycle, Individual Thrift, and the Wealth of Nations."" American Economic Review 76(3):297-313.
https://doi.org/10.1126/science.234.4777.704
Mundial, Banco. 2008. ""Finance for All? Policies and Pitfalls in Expanding Access."" Washington DC: World Bank.
Nenova, Tatiana, Cecile T. Niang, and Anjum hmad. 2009. ""Bringing Finance to Pakistan's Poor: Access to Finance for Small Enterprises and the Underserved."" Retrieved from http://siteresources.worldbank.org/PAKISTANEXTN/Resources/293051-1241610364594/6097548-1242706658430/BringingFinancePakistanPoorMay192009.pdf.
Nicolini, Gianni, Brenda J. Cude and Swarn Chatterjee. 2013. ""Financial Literacy: A Comparative Study across Four Countries."" International Journal of Consumer Studies 37(6):689-705.
https://doi.org/10.1111/ijcs.12050
Nouman, Muhammad and Faisal Khan. 2010. ""Availability of Microfinance & Its Impact on Economic Growth: A Case Study of Rural Areas of Khyber Pakhtunkhwa."" Retrieved from https://www.researchgate.net/publication/228200488_ Availability_of_Microfinance_Its_Impact_on_Economic_Growth_A_Case_Study_of_Rural_Areas_of_Khyber_Pakhtunkhwa
O'Loughlin, John. 2004. ""Democratic Values in a Globalizing World: A Multilevel Analysis of Geographic Contexts."" GeoJournal 60(1):3-17.
https://doi.org/10.1023/B:GEJO.0000033581.20307.bc
O'Neill, Barbara, Aimee D Prawitz, Benoit Sorhaindo, Jinhee Kim and E. T. Garman. 2006. ""Changes in Health, Negative Financial Events, and Financial Distress/Financial Well-Being for Debt Management Program Clients."" Journal of Financial Counseling and Planning 17(2):46-63.
Petrides, Michalis. and Alex Karagrigoriou. 2008. ""Determinants of Debt: An Econometric Analysis Based on the Cyprus Survey of Consumer Finances."" Financial theory and practice 32(1):45-64.
Snijders, T.A.B. and R.J Bosker. 1999. ""Multilevel Analysis: An Introduction to Basic and Advanced Multilevel Modeling."" London: Sage.
Stoker, Laura and Jake Bowers. 2002. ""Designing Multi-Level Studies:: Sampling Voters and Electoral Contexts."" Electoral Studies 21(2):235-67.
https://doi.org/10.1016/S0261-3794(01)00021-X
Stone, Brice and Rosalinda V. Maury. 2006. ""Indicators of Personal Financial Debt Using a Multi-Disciplinary Behavioral Model."" Journal of economic psychology 27(4):543-56.
https://doi.org/10.1016/j.joep.2005.11.002
Thurow, Lester C. 1972. ""Education and Economic Equality."" The Public Interest 28(1):61-81.
Togba, Edith L. 2012. ""Microfinance and Households Access to Credit: Evidence from Côte D’ivoire."" Structural Change and Economic Dynamics 23:473-86.
https://doi.org/10.1016/j.strueco.2012.08.002
Tsai, Ming-chang, Rachel E. Dwyer and Ruey-ming Tsay. 2016. ""Does Financial Assistance Really Assist? The Impact of Debt on Wellbeing, Health Behavior and Self-Concept in Taiwan."" Social Indicators Research 125(1):127-47.
https://doi.org/10.1007/s11205-014-0835-z
Tudela, Merxe and Garry Young. 2005. ""The Determinants of Household Debt and Balance Sheets in the United Kingdom."" Bank of England. Quarterly Bulletin 45(3):373. Retrieved: June 2016 (http://ezproxy.um.edu.my/docview/215017808? accountid=28930).
Vella, Francis and Marno Verbeek. 1998. ""Whose Wages Do Unions Raise? A Dynamic Model of Unionism and Wage Rate Determination for Young Men."" Journal of Applied Econometrics 13(2):163-83.
https://doi.org/10.1002/(SICI)1099-1255(199803/04)13:2<163::AID-JAE460>3.0.CO;2-Y
Yilmazer, Tansel and Sharon A. DeVaney. 2005. ""Household Debt over the Life Cycle."" Financial Services Review 14(4):285-304.
https://doi.org/10.1111/deve.12106
Allison, Thomas H., Blakley C. Davis, Jeremy C. Short, and Justin W. Webb. 2015. ""Crowdfunding in a Prosocial Microlending Environment: Examining the Role of Intrinsic Versus Extrinsic Cues."" Entrepreneurship: Theory & Practice 39(1):53-73.
https://doi.org/10.1111/etap.12108
Anwar, Talat, Sarfraz K. Qureshi, Hammad Ali, and Munir Ahmed. 2004. ""Landlessness and Rural Poverty in Pakistan [with Comments]."" The Pakistan Development Review 43(4):855-74.
Arpino, Bruno, and Arnstein Aassve. 2014. ""The Role of Villages in Households’ Poverty Exit: Evidence from a Multilevel Model for Rural Vietnam."" Quality & Quantity 48(4):2175-89.
https://doi.org/10.1007/s11135-013-9885-6
GoP. 2013. ""Household Integrated Expenditure Survey 2011-12"". Pakistan Bureau of Statistics, Statistics division, Islamabad, Pakistan. Retrieved from http://www.pbs.gov.pk/content/ household-integrated-economic-survey-hies-2011-12.
Banks, James, Zoë Smith, and Matt Wakefield. ""The distribution of financial wealth in the UK: evidence from 2000 BHPS data."" Working Paper No. W02/21 London: Institute for Fiscal Studies. Retrieved from https://www.ifs.org.uk/wps/ wp0221.pdf
Bertola, Giuseppe, Richard Disney, and Charles B. Grant. 2006. The economics of consumer credit. Cambridge: Mit Press.
Brown, S., & Taylor, K. 2008. Household debt and financial assets: evidence from Germany, Great Britain and the USA. Journal of the Royal Statistical Society: Series A (Statistics in Society) 171(3): 615-643.
https://doi.org/10.1111/j.1467-985X.2007.00531.x
Bullen, Nina, Kelvyn Jones, and Craig Duncan. 1997. Modelling complexity: analysing between-individual and between-place variation-a multilevel tutorial. Environment and Planning A 29(4): 585-609.
https://doi.org/10.1068/a290585
Chen, Zibei and Minchao Jin. 2016. (2016). Financial Inclusion in China: Use of Credit. Journal of Family & Economic Issues 38(4): 528-540.
https://doi.org/10.1007/s10834-017-9531-x
Crook, Jonathan. 2006. ""Household Debt Demand and Supply: A Cross-Country Comparison."" Pp. 63-92 in The economics of consumer credit, edited by G. Bertola, R. Disney and C. Grant.
Del-Río, Ana, and Garry Young. 2005. ""The Determinants of Unse-cured Borrowing: Evidence from the British Household Panel Survey."" Bank of England. Quarterly Bulletin 45(2):187.
https://doi.org/10.2139/ssrn.824164
Duca, John V., and Stuart S. Rosenthal. 1993. ""Borrowing Constraints, Household Debt, and Racial Discrimination in Loan Markets."" Journal of Financial intermediation 3(1):77-103.
https://doi.org/10.1006/jfin.1993.1003
Fabbri, Daniela, and Mario Padula. 2004. ""Does Poor Legal Enforcement Make Households Credit-Constrained?"". Journal of Banking & Finance 28(10):2369-97.
https://doi.org/10.1016/j.jbankfin.2003.09.009
Fielding, Antony. 2004. ""Scaling for Residual Variance Components of Ordered Category Responses in Generalised Linear Mixed Multilevel Models."" Quality and Quantity 38(4):425-33.
https://doi.org/10.1023/B:QUQU.0000043118.19835.6c
Gelman, Andrew, and Jennifer Hill. 2007. ""Data Analysis Using Regression and Multilevel Hierarchical Models"". Vol. 1. New York: Cambridge University Press.
Godwin and Deborah D. 1998. ""Household Debt Quintiles: Explaining Changes 1983–1989."" Journal of Consumer Affairs 32(2):369-93.
https://doi.org/10.1111/j.1745-6606.1998.tb00414.x
Gregorio, José De and Jong–Wha Lee. 2002. ""Education and Income Inequality: New Evidence from Cross-Country Data."" Review of Income and Wealth 48(3):395-416.
https://doi.org/10.1111/1475-4991.00060
Grilli, Leonardo, and Carla Rampichini. 2015. ""Specification of Random Effects in Multilevel Models: A Review."" Quality & Quantity 49(3):967-76.
https://doi.org/10.1007/s11135-014-0060-5
Kim, Haejeong, and Sharon A. DeVaney. 2001. ""The Determinants of Outstanding Balances among Credit Card Revolvers."" Journal of Financial Counseling and Planning 12(1):67-79.
Ladas, Alexandras, Jonathan Garibaldi, Rodrigo Scarpel, and Uwe Aickelin. 2014. ""Augmented Neural Networks for Modelling Consumer Indebtness."" Pp. 3086-93 in Neural Networks (IJCNN), 2014 International Joint Conference on: IEEE.
https://doi.org/10.1109/IJCNN.2014.6889760
Leonard, Tammy, and Wenhua Di. 2014. ""Is Household Wealth Sustainable? An Examination of Asset Poverty Reentry after an Exit."" Journal of Family and Economic Issues 35(2):131-44.
https://doi.org/10.1007/s10834-013-9357-0
Li, Wei and Laurie Goodman. 2015. ""Americans’ Debt Styles by Age and over Time."" Retrieved from http://urbn.is/29EOqUD.
Littlefield, Elizabeth, Jonathan Morduch and Syed Hashemi. 2003. ""Is Microfinance an Effective Strategy to Reach the Millennium Development Goals?"" Focus Note 24(2003):1-11. Retrieved from http://s3.amazonaws.com/academia.edu.documents/ 8384719/mf-mdgs-morduch.pdf?AWSAccessKeyId=AKIAJ56 TQJRTWSMTNPEA&Expires=1477544447&Signature=Y%2FDVIdroRMYfOcgBaggYhDTiEk0%3D&response-content-disposition=inline%3B%20filename%3DIs_microfinance_an_effective_strategy_to.pdf.
Livingstone, Sonia M., and Peter K. Lunt. 1992. ""Predicting Personal Debt and Debt Repayment: Psychological, Social and Economic Determinants."" Journal of economic psychology 13(1):111-34.
https://doi.org/10.1016/0167-4870(92)90055-C
Magri, Silvia. (2002). ""Italian households' debt: determinants of demand and supply"". Temi di discussione 454. Retrieved from http://www.bancaditalia.it/pubblicazioni/temi-disc%20...%200454/tema_454_02.pdf
Modigliani, Franco. 1986. ""Life Cycle, Individual Thrift, and the Wealth of Nations."" American Economic Review 76(3):297-313.
https://doi.org/10.1126/science.234.4777.704
Mundial, Banco. 2008. ""Finance for All? Policies and Pitfalls in Expanding Access."" Washington DC: World Bank.
Nenova, Tatiana, Cecile T. Niang, and Anjum hmad. 2009. ""Bringing Finance to Pakistan's Poor: Access to Finance for Small Enterprises and the Underserved."" Retrieved from http://siteresources.worldbank.org/PAKISTANEXTN/Resources/293051-1241610364594/6097548-1242706658430/BringingFinancePakistanPoorMay192009.pdf.
Nicolini, Gianni, Brenda J. Cude and Swarn Chatterjee. 2013. ""Financial Literacy: A Comparative Study across Four Countries."" International Journal of Consumer Studies 37(6):689-705.
https://doi.org/10.1111/ijcs.12050
Nouman, Muhammad and Faisal Khan. 2010. ""Availability of Microfinance & Its Impact on Economic Growth: A Case Study of Rural Areas of Khyber Pakhtunkhwa."" Retrieved from https://www.researchgate.net/publication/228200488_ Availability_of_Microfinance_Its_Impact_on_Economic_Growth_A_Case_Study_of_Rural_Areas_of_Khyber_Pakhtunkhwa
O'Loughlin, John. 2004. ""Democratic Values in a Globalizing World: A Multilevel Analysis of Geographic Contexts."" GeoJournal 60(1):3-17.
https://doi.org/10.1023/B:GEJO.0000033581.20307.bc
O'Neill, Barbara, Aimee D Prawitz, Benoit Sorhaindo, Jinhee Kim and E. T. Garman. 2006. ""Changes in Health, Negative Financial Events, and Financial Distress/Financial Well-Being for Debt Management Program Clients."" Journal of Financial Counseling and Planning 17(2):46-63.
Petrides, Michalis. and Alex Karagrigoriou. 2008. ""Determinants of Debt: An Econometric Analysis Based on the Cyprus Survey of Consumer Finances."" Financial theory and practice 32(1):45-64.
Snijders, T.A.B. and R.J Bosker. 1999. ""Multilevel Analysis: An Introduction to Basic and Advanced Multilevel Modeling."" London: Sage.
Stoker, Laura and Jake Bowers. 2002. ""Designing Multi-Level Studies:: Sampling Voters and Electoral Contexts."" Electoral Studies 21(2):235-67.
https://doi.org/10.1016/S0261-3794(01)00021-X
Stone, Brice and Rosalinda V. Maury. 2006. ""Indicators of Personal Financial Debt Using a Multi-Disciplinary Behavioral Model."" Journal of economic psychology 27(4):543-56.
https://doi.org/10.1016/j.joep.2005.11.002
Thurow, Lester C. 1972. ""Education and Economic Equality."" The Public Interest 28(1):61-81.
Togba, Edith L. 2012. ""Microfinance and Households Access to Credit: Evidence from Côte D’ivoire."" Structural Change and Economic Dynamics 23:473-86.
https://doi.org/10.1016/j.strueco.2012.08.002
Tsai, Ming-chang, Rachel E. Dwyer and Ruey-ming Tsay. 2016. ""Does Financial Assistance Really Assist? The Impact of Debt on Wellbeing, Health Behavior and Self-Concept in Taiwan."" Social Indicators Research 125(1):127-47.
https://doi.org/10.1007/s11205-014-0835-z
Tudela, Merxe and Garry Young. 2005. ""The Determinants of Household Debt and Balance Sheets in the United Kingdom."" Bank of England. Quarterly Bulletin 45(3):373. Retrieved: June 2016 (http://ezproxy.um.edu.my/docview/215017808? accountid=28930).
Vella, Francis and Marno Verbeek. 1998. ""Whose Wages Do Unions Raise? A Dynamic Model of Unionism and Wage Rate Determination for Young Men."" Journal of Applied Econometrics 13(2):163-83.
https://doi.org/10.1002/(SICI)1099-1255(199803/04)13:2<163::AID-JAE460>3.0.CO;2-Y
Yilmazer, Tansel and Sharon A. DeVaney. 2005. ""Household Debt over the Life Cycle."" Financial Services Review 14(4):285-304.
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Published
2018-08-15
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Haq, W., Ismail, N. A., & Satar, N. M. (2018). Investigation of Household Debt through Multilevel Multivariate Analysis: Case of a Developing Country. Journal of Reviews on Global Economics, 7, 297–316. https://doi.org/10.6000/1929-7092.2018.07.26
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