The Role of Informal Finance in Household Capital Accumulation: Evidence from Taiwan

Economies that experience rapid growth also experience major changes in their consumption patterns, particularly for consumer durables. This paper studies the diffusion of durables in Taiwan between 1977 and 1991. We focus on the link between household accumulation of durables and participation in informal financial institutions. While growth in per capita income in Taiwan has been great, many households still rely on traditional forms of finance. We test the idea that rotating savings and credit associations, which are found worldwide, exist to lower the cost of saving for durables. Our analysis finds evidence of that link.