Roads and Loans
65 Pages Posted: 23 Jan 2018 Last revised: 23 Mar 2019
Date Written: March 20, 2019
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 -- odds of a villager getting a loan is twice as large, and the average amount lent to them is about 30-60% 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
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