Is credit associated with a higher quality of life? A capability approach

Abstract

There has been an increasing amount of research going beyond income-based approaches to social and economic development. Drawing closely on Sen’s capability approach to welfare economics, this article investigates whether the access to, and use of, informal and formal credit is associated with a higher quality of life among the poor in Hong Kong. Specifically, a new survey is constructed, reflecting key theoretical concepts from Sen and Nussbaum’s framework, and regression models are used to estimate relationships between life quality and financial services. Key empirical findings of the article include the existence of the unhappy borrower, the lower level of capability that borrowers have at home relative to those that do not borrow money and how credit is used has an effect on objective well-being.