THE POLITICAL AND BEHAVIORAL FOUNDATIONS OF INCLUSIVE ECONOMIC INSTITUTIONS: SUSU COLLECTION IN GHANA by Kweku A. Opoku-Agyemang A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy (Development) at the UNIVERSITY OF WISCONSIN-MADISON 2012 Date of final oral examination: 5/15/12 This dissertation is approved by the following members of the Final Oral Committee: Jeremy Foltz, Associate Professor, Agricultural and Applied Economics Aili Tripp, Professor, Political Science Scott Straus, Professor, Political Science Gay Seidman, Professor, Sociology Jennifer Alix-Garcia, Assistant Professor, Agricultural and Applied Economics © Copyright by Kweku A. Opoku-Agyemang 2012 All Rights Reserved i For my parents, and for Kwabena and Maame Adwoa. Ewuradze yε da w’ase. ii ACKNOWLEDGMENTS I am grateful for so much from so many. Thank God for wonderful experiences and friends, old and new, all treasures. I am very grateful to my dissertation supervisor, Jeremy Foltz for his help in refining my ideas, his warmth and patience, and most of all, his generosity. I also thank my dissertation committee members, Aili Tripp, Scott Straus, Gay Seidman and Jennifer Alix-Garcia for their helpful suggestions, advice and support. I thank my undergraduate advisor, D.A. Laryea, and my secondary school teachers Robert Akpalu and Mr. Asare for much inspiration. My dissertation field work in Ghana went much smoother than I dared hope thanks to too many people to list here. Yet I must thank John V. Mensah for hosting me at the Institute for Development Studies of the University of Cape Coast and his helpful advice. I also thank Samuel Sackey and the financial and susu officers of Kakum Rural Bank for excellent assistance. I thank Ebo Sam for amazing logistical support. I thank Bertha Ansah-Djan and Enoch Donkoh of the Microfinance and Small Loans Center; The Honourable Seth Terkper of the Ministry of Finance and Economic Planning; Mr. Pinkrah, George Tokpo, Alex Asmah, Araba Kwansema Brown, Frances Adu-Mante, Robert Brown, Kojo Mbir, Rose Acquah, Elizabeth Agbemashior, Atta Britwum, Paul Appiah, Elaine Kwami, David Odoi, and Kofi Awosabo Asare for being so generous with their time. I am especially grateful to all of the people of the Central and Greater Accra Regions that participated in the study. I received generous funding from an M.E.O. Fellowship, a Scott-Kloeck Jensen Fellowship, a Center for World Affairs and Global Economy Fellowship, an A. Eugene Havens iii Award, a Raymond J. Penn Fellowship and a William Thiesenhusen Memorial Award: I sincerely thank everyone who gave so kindly. The work and care of the University of Wisconsin Development Studies Program Coordinator, Chris Elholm, has been integral to my success. I also greatly appreciate the efforts of Nancy Carlisle, Cindy Munn, Vernetta Reid, and John Ackah of the Agricultural and Applied Economics Department. Many graduate students and friends helped and encouraged me during my research journey. I would like to thank Victor Okorie, Theresa Ennin, Kwaku Addae-Mununkum, Kobina Otoo, Kobina Amuah, Orville Harris, Gergens Polynice, Ekow Ewoodzie, Suzanne Reis, Linda Park, Adam Auerbach, Charles Taylor, Meina Cai, Barry Driscoll, Linda Vakunta, Hillary Caruthers, Nancy Rydberg, Thaís Passos Fonseca, Sonia Ares, Jack Buchanan, Rebecca Cleary, Stephanie Prellwitz, Maria Rodrigo, Katherine Zipp, Dylan Fitz, Patricia Yanez-Pagans, Rachid Laajaj, Trevor Young-Hyman, Stella Kim, Debby Sumwalt, Shoshana Griffith, George Acquah, Horacio Aguirre, Julia Collins, Ya-Ting Chuang, Jhin Han, Dong Tam Le, Wilson Law, John Chung-En Liu, Kyal Berends, Emily Sellars, Jared Gars, Daniel Kanyam, Iddisah Sulemana, Stan Anamuah-Mensah, Edwin Amonoo, Maythiwan Kiatgrajai, Hannah Lanser, Wilson Cong, Xiang Zhong, Madhumanti Sardar, Xiaodong Wang, Michael Berkowitz and Chi-Alpha, Jon Dahl and IV, Paul and Donna Bell, Phil and Linda Malsack, Zach Stolfus, Linda Pankow, Mike Crossley, Elzan Godlewski, and Hannah Doku. Faith Community Bible Church and House Group have been immense places of support for me. Special thanks to my parents, Kwadwo and Naana Opoku-Agyemang for being my role models. I also thank my brother and sister, Kwabena and Maame Adwoa for motivating me to do my very best. Thank you all. iv Contents Contents iv List of Tables viii List of Figures xiv Abstract xv 1 Introduction 1 2 Field and Data Environment, Survey Methodologies, and Project Overview 11 2.1 Introduction . 11 2.2 Field Environment and Setting: Ghana’s Central Region . 13 2.2.1 Community Banking in Central Ghana: Kakum Rural Bank . 19 2.3 Survey Design, Sample Selection and Methodology . 21 2.4 Sample Selection and Size . 21 2.4.1 Susu Collectors as Enumerators and Sampling Methodology . 22 2.4.2 Interviews . 24 2.4.2.1 Susu Collector and Client Questionnaires . 25 2.5 Selected Descriptive Statistics and Project Overview . 26 2.5.0.2 Deposit Susu Collectors . 26 v 2.5.1 Susu Clients . 31 2.6 Conclusion . 42 3 Can State Capacity be built out of the Informal Economy? Financial Re- forms in Ghana 49 3.1 Introduction . 49 3.2 State Capacity, Politics, and Susu in Ghana . 58 3.2.1 Introduction . 58 3.2.1.1 Origins and Structure of Licensing Frameworks in Ghana . 59 3.2.1.2 Legal and Fiscal Capacities: Microfinance Regula- tion and Formal-Informal Financial Markets in Ghana 60 3.2.1.3 Fiscal Capacities: Informal Taxation and State Ca- pacity . 63 3.3 Theoretical Preliminaries for State Capacity . 65 3.4 The Ghana Poverty Reduction Strategies and MASLOC as Microeco- nomic Policy . 67 3.4.1 The Poverty Reduction Strategies and the Evolution of MASLOC in Ghana . 67 3.4.2 The Microfinance and Small Loans Center (MASLOC) and the goals of microeconomic policy in Ghana . 69 3.4.2.1 Current Target Beneficiaries of MASLOC Facilities 70 3.4.3 Direct and Indirect Modules of MASLOC . 71 3.4.3.1 Direct Module: MASLOC Module 1 . 71 3.4.3.2 Indirect Module: MASLOC Module 2 . 72 3.5 Inclusiveness versus Adverse Selection: Confronting the Theory with Qualitative Data . 73 vi 3.6 A Basic Signaling Model: Susu Collection as a Mechanism of Building State Capacity . 77 3.6.1 Informal Taxation and State Capacity: The Implications of MASLOC and Susu Collection . 78 3.6.2 Summary . 79 3.7 Concluding Comments and Policy Implications . 80 3.8 A Model of State Capacity and Inclusive Economic Institutions . 83 3.8.1 A Basic Model . 84 4 Commitment Savings subject to Personal Rules: Ghanaian Susu Collec- tion 96 4.1 Introduction . 96 4.2 Susu Collectors and Savings Mobilization in Ghana . 102 4.3 Model and Predictions . 104 4.4 Survey Data, Savings Schedules Design and Measuring Internal Pref- erences for Savings Commitments . 107 4.5 Empirical Strategies: OLS and Propensity Score Matching Estimators 110 4.6 Savings Mobilization Results . 113 4.6.1 Savings Schedules Impacts On Contributions: OLS Results . 114 4.6.2 Savings Schedules as Personal Rules and Savings Contribu- tions: Using all other savings schedules as comparison groups 116 4.6.3 Savings Schedules Impacts On Contributions: Using a single savings schedule as a comparison group . 120 4.6.4 Susu Savings Rates Results . 124 4.6.5 Schedule Impacts On Savings Rates: OLS and Propensity Score Matching . 126 4.6.6 Schedule Impacts On Savings Rates: Using a single savings schedule as a comparison group . 132 vii 4.7 Discussion of Results . 136 4.8 Conclusions and Policy Implications . 137 5 Heterogenous Signaling at the Convergence of Formal and Informal Fi- nance in Ghana 140 5.1 Introduction . 140 5.2 The Susu Collection Institution at the Convergence of Formal and In- formal Finance in Ghana . 144 5.2.1 Susu Collectors and The Need for Credit among Saving En- trepreneurs . 146 5.3 A Model of Susu Savings and Creditworthiness Signaling in Ghana . 148 5.3.1 The Basic Setup . 149 5.3.2 Model Environment given Several Levels of Signaling Efforts 155 5.4 Data Description and Estimation Strategies . 163 5.4.1 Data Description . 163 5.4.2 Estimation Strategy . 166 5.5 Conclusions . 186 6 Women Empowerment, Gender Bias and Susu Collection in Ghana 188 6.1 Introduction . 188 6.2 Literature . 193 6.3 Matrilineality, Gender and Entrepreneurship in Central Ghana . 194 6.3.1 Susu Collection, Rural Banks and the Political Economy of Women’s Enfranchisement in Central Ghana . 195 6.4 Theoretical Models . 197 6.4.1 Signaling and Cross-Gender Bias in Susu Savings Mobilization and Credit Provision . 198 viii 6.4.2 Gender Matching and Susu Savings Mobilization and Credit Provision . 201 6.4.2.1 Hypotheses . 202 6.5 Empirical Tests: Female Susu Collectors and Gender-Matched networks 203 6.5.1 Specifications . 208 6.5.2 Empirical Strategy: Propensity Score Matching . 210 6.6 Results . 211 6.6.1 Susu Collector-Susu Client Gender Networks . 213 6.6.2 Alternative Explanations: Education and Effort in Gender-Bias, Susu Savings and Credit Provision . 222 6.6.3 Survey Evidence and Mechanisms of Education and Economic Effort . 223 6.6.3.1 Education and Gender Bias . 223 6.6.3.2 Economic Effort and Gender Bias . 228 6.6.4 Discussion of Education and Economic Effort Results . 237 6.7 Conclusion and Policy Implications . 237 7 Conclusions and Future Research 245 7.1 Matching Protocol for Propensity Score Estimations . 249 7.1.1 Logit Regressions: Determinants of Susu Savings Schedules (Savings) . 250 7.1.2 Logit Regressions: Determinants of Susu Savings Schedules (Credit) . 300 7.1.3 Logit Regressions: Determinants of Susu Savings Schedules (Gender) . 318 Bibliography 328 ix LIST OF TABLES Table 2.1 Descriptive Statistics of Susu Collectors 28 2.2 Descriptive Statistics of Susu Clients 32 2.3 Stated Occupations of Susu Clients 34 2.4.