Finance and Poverty: Evidence from India

70 Pages Posted: 6 Jun 2013

See all articles by Meghana Ayyagari

Meghana Ayyagari

George Washington University - School of Business

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Mohammad Hoseini

Institute for Management and Planning Studies (IMPS); Tilburg University - European Banking Center

Date Written: June 2013

Abstract

Using state-level data from India over the period 1983 to 2005, this paper gauges the effect of financial deepening and outreach on rural poverty. Following the 1991 liberalization episode, we find a strong negative relationship between financial deepening, rather than financial breadth, and rural poverty. Instrumental variable regressions suggest that this relationship is robust to omitted variable and endogeneity biases. We also find that financial deepening has reduced poverty rates especially among self-employed in the rural areas, while at the same time it supported an inter-state migration trend from rural areas into the tertiary sector in urban areas, consistent with financial deepening being driven by credit to the tertiary sector. This suggests that financial deepening contributed to poverty alleviation in rural areas by fostering entrepreneurship and inducing geographic-sectoral migration.

Keywords: Economic development, Entrepreneurship, Financial liberalization, India, Migration, Poverty alleviation

JEL Classification: G21, G28, O15, O16

Suggested Citation

Ayyagari, Meghana and Beck, Thorsten and Hoseini, Mohammad, Finance and Poverty: Evidence from India (June 2013). CEPR Discussion Paper No. DP9497. Available at SSRN: https://ssrn.com/abstract=2275150

Meghana Ayyagari (Contact Author)

George Washington University - School of Business ( email )

Washington, DC 20052
United States

Thorsten Beck

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Mohammad Hoseini

Institute for Management and Planning Studies (IMPS) ( email )

North Niavaran Street
Tehran
Iran

HOME PAGE: http://imps.ac.ir/index.aspx?fkeyid=&siteid=1&pageid=2624

Tilburg University - European Banking Center ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

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