Roads and Loans

Review of Financial Studies, Forthcoming

HKUST Business School Research Paper No. 2023-100

54 Pages Posted: 16 Jul 2019 Last revised: 24 Mar 2023

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Abhiroop Mukherjee

Hong Kong University of Science & Technology (HKUST)

S Lakshmi Naaraayanan

London Business School

Date Written: March 2023

Abstract

Does 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 an infrastructure program that brought road access to unconnected Indian villages. This program prioritized roads for villages above specific population thresholds, allowing us to exploit resulting discontinuities for identification. Using detailed data from a large bank, we find that 75% more villagers get loans, and the average amount lent to them is 30-35% higher, in villages just above these thresholds. District-level analyses further suggest that roads and loans are complements in the growth process.

Keywords: Finance and growth, Infrastructure, Roads, Rural lending

JEL Classification: G21, O16

Suggested Citation

Agarwal, Sumit and Mukherjee, Abhiroop and Naaraayanan, S Lakshmi, Roads and Loans (March 2023). Review of Financial Studies, Forthcoming, HKUST Business School Research Paper No. 2023-100, Available at SSRN: https://ssrn.com/abstract=3420546 or http://dx.doi.org/10.2139/ssrn.3420546

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

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

S Lakshmi Naaraayanan (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

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

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