Aspirations and Real Estate Investment in Rural Myanmar — New Working Paper

Aspirations, or future-oriented goals, influence how we make choices in the present. In recent years, development economists have developed a particular interest in the way aspirations influence human behavior. The figure below plots my calculation of the number of published articles that mention “aspirations” cataloged in the EconLit database from 1956 through 2016.

These recent articles include new and innovative theories about how aspirations may influence behavior in the context of poverty, efforts to randomly shock aspirations to aid in studying causal effects of aspirations on behavior, and even attempts at quantifying measures of ‘hope’. Newly minted Ph.D. students have written entire dissertations about the topic of aspirations in developing countries and Seema Jayachandran even wrote a New York Times article about the emerging literature.

One of the more influential theories on the economics of aspirations is detailed in a 2017 Econometrica paper by Garance Genicot and Debraj Ray entitled “Aspirations and Inequality.” In this paper, the authors formalize the idea that swift economic growth in a relatively poor country can have competing consequences. It can either inspire powerful aspirations that spur optimism and investment in the future or it can lead to frustration and despair.

In my new working paper entitled, “Dream Homes: Aspirations and Real Estate Investments in Rural Myanmar,” I add to the empirical literature that aims to test the validity of this theory using real-world data. Here is the abstract.

The aspirations gap is the distance between an individual’s current standard of livelihood and their aspired standard. A growing theoretical literature predicts an inverted U-shaped relationship between the aspirations gap and investment choices. This theory posits that aspirations both “too close” and “too far” away from current levels lead to less investment in the future. This study tests this hypothesis and extends existing empirical findings to rural Myanmar by examining the relationship between the income aspirations gap and real estate investment choices. I find that income aspirations that are ahead, but not too far ahead, of current income levels incentivize the highest rate of investment. Such a relationship between the income aspirations gap and financial investments suggests the presence of psychological constraints to poverty alleviation and development in rural Myanmar. I also provide new evidence on the credibility of conventional techniques used to measure aspirations.

Here is a picture showing the non-parametric fit of the inverted U-shaped relationship between the aspirations gap and investment choices in rural Myanmar.

If you have the time, I’d appreciate any feedback and comments on this paper. I’ll be presenting this work at the upcoming Midwest International Economic Development Conference (#MidDev) in Madison, WI and the Applied and Agricultural Economics (AAEA) Meetings in Atlanta, GA. I would love to catch up if you will also be attending these events.