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Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment

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Author Info
Burgess, Robin
Pande, Rohini

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Abstract

Lack of access to finance is often cited as a key reason for why poor people remain poor. This Paper uses data on the Indian rural branch expansion programme to provide empirical evidence on this issue. Between 1977 and 1990, the Indian central bank mandated that a commercial bank could open a branch in a location with one or more bank branches only if it opens four in locations with no bank branches. We show that, between 1977 and 1990, this rule caused banks to open relatively more rural branches in Indian states with lower initial financial development. The reverse was true outside this period. We exploit this fact to identify the impact of opening a rural bank on poverty and output. Our estimates suggest that the Indian rural branch expansion programme significantly lowered rural poverty, and increased non-agricultural output.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4211.

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Date of creation: Jan 2004
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Handle: RePEc:cpr:ceprdp:4211

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Related research
Keywords: bank licensing; credit constraints; diversification; finance and development; growth; O00; poverty; redistribution; rural banking; structural change;

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Find related papers by JEL classification:
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
G20 - Financial Economics - - Financial Institutions and Services - - - General
H10 - Public Economics - - Structure and Scope of Government - - - General
H40 - Public Economics - - Publicly Provided Goods - - - General
I30 - Health, Education, and Welfare - - Welfare and Poverty - - - General
N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
O20 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - General
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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References listed on IDEAS
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  12. Sapienza, Paola, 2004. "The effects of government ownership on bank lending," Journal of Financial Economics, Elsevier, vol. 72(2), pages 357-384, May. [Downloadable!] (restricted)
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  17. Robin Burgess & Rohini Pande, 2003. "Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment," STICERD - Development Economics Papers 40, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
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  18. Esther Duflo, 2001. "Schooling and Labor Market Consequences of School Construction in Indonesia: Evidence from an Unusual Policy Experiment," American Economic Review, American Economic Association, vol. 91(4), pages 795-813, September. [Downloadable!] (restricted)
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  24. Abhijit V. Banerjee & Paul J. Gertler & Maitreesh Ghatak, 2002. "Empowerment and Efficiency: Tenancy Reform in West Bengal," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 239-280, April. [Downloadable!] (restricted)
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