Explaining differences in rural household debt between Thailand and Vietnam: Economic environment versus household characteristics

This study explores cross-country differences in debt market participation, level of household debt holding and over-indebtedness between rural households in Thailand and Vietnam. We identify socio-economic determinants for rural households in Thailand and Vietnam by decomposing differences into those attributable to household characteristics and those due to economic environments using three decomposition methods. Significant differences are found in debt market participation, the level of debt and the extent of indebtedness. Our major findings are that differences in the economic environment are more important than household characteristics. While in Vietnam poorer households are less likely to engage in borrowing in Thailand a higher share of similar type of households participate in debt markets and are more indebted because of more liberal credit market conditions. The policy message of the paper is that credit market expansions in rural areas should be aligned with households borrowing capacity.