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Abstract

Does multiple borrowing lead micro-borrowers into over-indebtednes? Do over-indebted micro-borrowers take loans to refinance existing loans that are ultimately unpayable and get trapped in a vicious circle of debt? Using a longitudinal household survey data, this study addresses such questions by examining the dynamic interdependency between over-indebtedness and multiple borrowing in the context of micro-borrowers in Thailand and Vietnam. Specifically, the trues state dependence and cross-state dependence effects of over-indebtedness and multiple borrowing are tested using the dynamic random effect bivariate probit model while controlling for observed and unobserved household heterogeneity. Results suggest that taking multiple borrowing simultaneously does positively influence household's risk of becoming over-indebted in Thailand, while in Vietnam it has no significant influence on household's risk of over-indebtedness. Although households reported of taking multiple loans to repay old debts, the empirical results do not support the premises that over-indebtedness reinforces households to refinance ultimately unpayable debts and trap households into a perpetual debt cycle.

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