Spillover effects of microcredit on the GDP of surrounding cantons in Ecuador

Abstract

Purpose: The aim of this paper is to analyse the spillover effects of microcredit on the economy of Ecuador, with a particular focus on its potential as a poverty alleviation mechanism. Design/methodology/approach: To address our research questions, we take into account the distance between cantons (Ecuador’s own administrative distribution) by adopting a spatial autoregressive (SAR) model. To this end, a database will be constructed with macroeconomic information about the country, broken down by canton (administrative division of Ecuador), and in a 2019 cross section, with a total of 1,331 microcredit operations in all 221 of Ecuador’s cantons. Findings: We find a positive effect of microcredit on these neighbouring regions in terms of wealth generation. Research limitations/implications: We acknowledge that this study is limited to Ecuadorian cantons. Nonetheless, it is crucial to emphasize that focussing on an under-represented developing country like Ecuador adds significant value to the research. Practical implications: Facilitating access to microcredit is one of the main solutions to address the goals proposed in the sustainable development goals (SDGs). Social implications: Microcredit activity contributes to the creation of value and wealth in Ecuador, exerting a spillover effect in neighbouring areas that can generate positive multiplier effects and alleviate poverty. For all of the above reasons, our proposal for the country is to support and promote microcredit as one of the main solutions to address the goals proposed in the SDGs. Originality/value: The novelty of this study lies in the use of spatial econometrics to observe the indirect effects of microcredit on the regions bordering the canton in which it was issued, thus examining the spatial effects of microcredit on wealth distribution.