Roads and Loans

67 Pages Posted: 23 Jan 2018 Last revised: 24 Sep 2018

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Abhiroop Mukherjee

Hong Kong University of Science & Technology (HKUST) - Department of Finance

S Lakshmi Naaraayanan

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: September 1, 2018

Abstract

Does the flow of financing respond to changes in productive opportunities even for the world's poor? We answer this question by examining the response of private bank financing to a shock to the rural road network in India, which brought road access to hitherto unconnected villagers. The program prioritized road connectivity for villages above explicit population thresholds, allowing us to exploit discontinuities in treatment probability to identify our effects. We find large financing responses to rural road connectivity -- over 50% more villagers receive loans, and the average amount lent to them is about 50-60% higher-- for villages right above the threshold compared to those just below. Roads seem to disproportionately benefit lower caste villagers who lack collateralizable assets. Finally, we examine macro lending data from India's central bank and district-level GDP data and find that connectivity and finance are complements in the growth process.

Keywords: Finance and growth, Infrastructure development and finance, Rural lending

JEL Classification: G21, O16

Suggested Citation

Agarwal, Sumit and Mukherjee, Abhiroop and Naaraayanan, S Lakshmi, Roads and Loans (September 1, 2018). Available at SSRN: https://ssrn.com/abstract=3103001 or http://dx.doi.org/10.2139/ssrn.3103001

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Abhiroop Mukherjee (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

S Lakshmi Naaraayanan

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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