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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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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
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Timothy Besley & Robin Burgess, 2002. "The Political Economy Of Government Responsiveness: Theory And Evidence From India," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1415-1451, November. [Downloadable!] (restricted)
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  11. 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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  16. 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. Robin Burgess & Rohini Pande & Grace Wong, 2005. "Banking for the Poor: Evidence From India," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 268-278, 04/05. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Manoel F. Meyer Bittencourt, 2006. "Financial Development and Inequality: Brazil 1985-99," DEGIT Conference Papers c011_055, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
    Other versions:
  2. Mark J. Garmaise & Tobias J. Moskowitz, 2004. "Bank Mergers and Crime: The Real and Social Effects of Credit Market Competition," NBER Working Papers 11006, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Petia Topalova, 2008. "India: Is the Rising Tide Lifting All Boats?," IMF Working Papers 08/54, International Monetary Fund. [Downloadable!]
  4. Robin Burgess & Rohini Pande, 2005. "Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment," American Economic Review, American Economic Association, vol. 95(3), pages 780-795, June. [Downloadable!] (restricted)
    Other versions:
  5. Catriona Purfield, 2006. "Mind the Gap - Is Economic Growth in India Leaving Some States Behind?," IMF Working Papers 06/103, International Monetary Fund. [Downloadable!]
  6. Yaron, Jacob & Mendoza, Juan Carlos & Mascaro, Yira & Francisco, Manuela, 2008. "Measuring the performance and achievement of social objectives of development finance institutions," Policy Research Working Paper Series 4506, The World Bank. [Downloadable!]
  7. Ugo Panizza & Eduardo Levy-Yeyati & Alejandro Micco, 2004. "Should the Government be in the Banking Business? The Role of State-Owned and Development Banks," RES Working Papers 1014, Inter-American Development Bank, Research Department. [Downloadable!]
  8. James B. Ang, 2008. "Finance And Inequality: The Case Of India," CAMA Working Papers 2008-18, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
  9. Flore Gubert & François Roubaud, 2005. "Analyser l’impact d’un projet de Micro-finance : l’exemple d’ADéFI à Madagascar," Working Papers DT/2005/14, DIAL (Développement, Institutions & Analyses de Long terme). [Downloadable!]
  10. Kumar Aniket, 2005. "Self Help Groups: Use of modified ROSCAs in Microfinance," ESE Discussion Papers 137, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
  11. Claessens, Stijn & Feijen, Erik, 2006. "Finance and hunger : empirical evidence of the agricultural productivity channel," Policy Research Working Paper Series 4080, The World Bank. [Downloadable!]
  12. Sanghamitra Bandyopadhyay, 2006. "Rich States, Poor States: Convergence and Polarisation in India," Economics Series Working Papers 266, University of Oxford, Department of Economics. [Downloadable!]
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