Advanced Search
MyIDEAS: Login to save this paper or follow this series

Local financial development and growth

Contents:

Author Info

  • Kendall, Jake

Abstract

Using a unique sample of net domestic product data for districts in India, I investigate the connection between banking sector development, human capital, and economic growth at the sub-national level. Using disaggregate data avoids many of the omitted variable problems that plague cross-country studies of the finance-growth connection and facilitates an instrumentation strategy. The findings show that the growth of many districts in India is financially constrained due to lack of banking sector development, and that the relationship between finance and growth may be non-linear. For the districts in the sample, moving from the 75th percentile of credit/net domestic product to the 25th percentile implies an average loss of 4 percent in growth over the 1990s. This indicates that the gains from increased banking sector outreach may be large. The analysis shows that human capital deepening can reduce the effect of the financial constraint and help decouple growth from financial development. In a district at the 25th literacy percentile, the implied growth loss due to a constrained banking sector is twice as large as in a district at the 75th literacy percentile. Thus, higher levels of human capital may activate alternative growth and production channels that are less finance intensive.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2009/02/13/000158349_20090213151623/Rendered/PDF/WPS4838.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4838.

as in new window
Length:
Date of creation: 01 Feb 2009
Date of revision:
Handle: RePEc:wbk:wbrwps:4838

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords: Banks&Banking Reform; Access to Finance; Economic Theory&Research; Debt Markets;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Keefer, Philip & Knack, Stephen, 1997. "Why Don't Poor Countries Catch Up? A Cross-National Test of Institutional Explanation," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 35(3), pages 590-602, July.
  2. Carlin, Wendy & Mayer, Colin, 1999. "Finance, Investment and Growth," CEPR Discussion Papers 2233, C.E.P.R. Discussion Papers.
  3. Aizenman, Joshua & Pinto, Brian & Radziwill, Artur, 2004. "Sources for Financing Domestic Capital - is Foreign Saving a Viable Option for Developing Countries?," Santa Cruz Center for International Economics, Working Paper Series, Center for International Economics, UC Santa Cruz qt7g18546z, Center for International Economics, UC Santa Cruz.
  4. Dani Rodrik & Arvind Subramanian, 2005. "From "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 193-228, September.
  5. Cole, Rebel A. & Moshirian, Fariborz & Wu, Qiongbing, 2008. "Bank stock returns and economic growth," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 995-1007, June.
  6. Bresnahan, Timothy F & Reiss, Peter C, 1990. "Entry in Monopoly Markets," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(4), pages 531-53, October.
  7. Clive Bell & Peter L. Rousseau, 2000. "Post-Independence India: A Case of Finance-Led Industrialization?," Vanderbilt University Department of Economics Working Papers 0019, Vanderbilt University Department of Economics.
  8. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
  9. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2002. "Does Local Financial Development Matter?," NBER Working Papers 8923, National Bureau of Economic Research, Inc.
  10. Kendall, Jake & Singh, Nirvikar, 2007. "Internet Kiosks in Rural India: What Influences Success?#," Santa Cruz Department of Economics, Working Paper Series qt8rj78792, Department of Economics, UC Santa Cruz.
  11. Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005. "Private Credit in 129 Countries," NBER Working Papers 11078, National Bureau of Economic Research, Inc.
  12. Christian Ahlin & Jiaren Pang, 2006. "Are Financial Development and Corruption Control Substitutes in Promoting Growth?," Vanderbilt University Department of Economics Working Papers 0709, Vanderbilt University Department of Economics.
  13. Robin Burgess & Rohini Pande & Grace Wong, 2005. "Banking for the Poor: Evidence From India," Journal of the European Economic Association, MIT Press, MIT Press, vol. 3(2-3), pages 268-278, 04/05.
  14. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
  15. Romero-Avila, Diego, 2007. "Finance and growth in the EU: New evidence from the harmonisation of the banking industry," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 1937-1954, July.
  16. Nandini Gupta, 2005. "Partial Privatization and Firm Performance," Journal of Finance, American Finance Association, vol. 60(2), pages 987-1015, 04.
  17. César Calderón & Lin Liu, 2002. "The Direction of Causality Between Financial Development and Economic Growth," Working Papers Central Bank of Chile, Central Bank of Chile 184, Central Bank of Chile.
  18. Levine, Ross & Zervos, Sara, 1996. "Stock Market Development and Long-Run Growth," World Bank Economic Review, World Bank Group, World Bank Group, vol. 10(2), pages 323-39, May.
  19. Levine, Ross & Loayza, Norman & Beck, Thorsten, 1999. "Financial intermediation and growth : Causality and causes," Policy Research Working Paper Series 2059, The World Bank.
  20. Rene M. Stulz & Rohan Williamson, 2001. "Culture, Openness, and Finance," NBER Working Papers 8222, National Bureau of Economic Research, Inc.
  21. Mitchell A. Petersen & Raghuram G. Rajan, 2000. "Does Distance Still Matter? The Information Revolution in Small Business Lending," NBER Working Papers 7685, National Bureau of Economic Research, Inc.
  22. Hasan, Iftekhar & Wachtel, Paul & Zhou, Mingming, 2009. "Institutional development, financial deepening and economic growth: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 157-170, January.
  23. Abhijit Banerjee & Lakshmi Iyer, 2010. "History Institutions and Economic Performance: The Legacy of Colonial Land Tenure Systems in India," Working Papers id:2811, eSocialSciences.
  24. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  25. Hasan, Iftekhar & Koetter , Michael & Wedow, Michael, 2009. "Regional growth and finance in Europe: Is there a quality effect of bank efficiency?," Research Discussion Papers 13/2009, Bank of Finland.
  26. Levine, Ross & Zervos, Sara, 1996. "Stock markets, banks, and economic growth," Policy Research Working Paper Series 1690, The World Bank.
  27. Simeon Djankov & Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2005. "The Law and Economics of Self-Dealing," NBER Working Papers 11883, National Bureau of Economic Research, Inc.
  28. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  29. Sathye, Milind, 2003. "Efficiency of banks in a developing economy: The case of India," European Journal of Operational Research, Elsevier, vol. 148(3), pages 662-671, August.
  30. Jayaratne, Jith & Strahan, Philip E, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(3), pages 639-70, August.
  31. Nirvikar Singh & T.N. Srinivasan, 2004. "Indian Federalism, Economic Reform and Globalization," Public Economics, EconWPA 0412007, EconWPA.
  32. Dollar, David & Kraay, Aart, 2002. " Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
  33. Greenwood, J. & Jovanovic, B., 1990. "Financial Development, Growth, And The Distribution Of Income," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9002, University of Western Ontario, The Centre for the Study of International Economic Relations.
  34. Howitt, Peter & Mayer-Foulkes, David & Aghion, Philippe, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," Scholarly Articles 4481509, Harvard University Department of Economics.
  35. Gormley, Todd A., 2010. "The impact of foreign bank entry in emerging markets: Evidence from India," Journal of Financial Intermediation, Elsevier, vol. 19(1), pages 26-51, January.
  36. Amin, Mohammad & Mattoo, Aaditya, 2008. "Human capital and the changing structure of the Indian economy," Policy Research Working Paper Series 4576, The World Bank.
  37. Dani Rodrik & Arvind Subramanian, 2004. "From "Hindu Growth" to Productivity Surge," IMF Working Papers 04/77, International Monetary Fund.
  38. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  39. Bayoumi, Tamim A. & Rose, Andrew K., 1993. "Domestic savings and intra-national capital flows," European Economic Review, Elsevier, vol. 37(6), pages 1197-1202, August.
  40. Anjali Kumar & Ajai Nair & Adam Parsons & Eduardo Urdapilleta, 2006. "Expanding Bank Outreach through Retail Partnerships : Correspondent Banking in Brazil," World Bank Publications, The World Bank, number 7038.
  41. Xavier Sala-i-Martin, 1994. "Regional cohesion: Evidence and theories of regional growth and convergence," Economics Working Papers 104, Department of Economics and Business, Universitat Pompeu Fabra.
  42. Beck, Thorsten, 2008. "The econometrics of finance and growth," Policy Research Working Paper Series 4608, The World Bank.
  43. Rioja, Felix & Valev, Neven, 2004. "Does one size fit all?: a reexamination of the finance and growth relationship," Journal of Development Economics, Elsevier, vol. 74(2), pages 429-447, August.
  44. Joshua Aizenman, 2003. "On the Hidden Links Between Financial and Trade Opening," NBER Working Papers 9906, National Bureau of Economic Research, Inc.
  45. repec:fth:wobaco:1083 is not listed on IDEAS
  46. Catalan, Mario & Impavido, Gregorio & Musalem, Alberto R., 2000. "Contractual savings or stock market development - Which leads?," Policy Research Working Paper Series 2421, The World Bank.
  47. Paul S. Calem & Leonard I. Nakamura, 1998. "Branch Banking And The Geography Of Bank Pricing," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 600-610, November.
  48. Youngjae Lim & Robert Townsend, 1998. "General Equilibrium Models of Financial Systems: Theory and Measurement in Village Economies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 59-118, January.
  49. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  50. Charles W. Calomiris & Joseph R. Mason, 2003. "Consequences of Bank Distress During the Great Depression," American Economic Review, American Economic Association, vol. 93(3), pages 937-947, June.
  51. Robert J. Barro & Xavier Sala-i-Martin, 2003. "Economic Growth, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262025531, December.
  52. Robert J. Barro & Rachel McCleary, 2003. "Religion and Economic Growth," NBER Working Papers 9682, National Bureau of Economic Research, Inc.
  53. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  54. Paul Wachtel & Peter L. Rousseau, 2000. "Inflation, Financial Development and Growth," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 00-10, New York University, Leonard N. Stern School of Business, Department of Economics.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Jessica Los Banos & Céline Meslier-Crouzille & Emmanuelle Nys & Alain Sauviat, 2011. "Banking industry structure and economics activities: A regional approach for the Philippines," Post-Print hal-00785483, HAL.
  2. Bagayev, Igor & Najman, Boris, 2014. "Money to fill the gap? Local financial development and energy intensity in Europe and Central Asia," MPRA Paper 55193, University Library of Munich, Germany.
  3. Law, Siong Hook & Azman-Saini, W.N.W. & Ibrahim, Mansor H., 2013. "Institutional quality thresholds and the finance – Growth nexus," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5373-5381.
  4. Tronzano, Marco, 2011. "“Finance and Growth: A Reassessment of the Empirical Evidence for the Indian Economy” - Finanza e crescita: un riesame dell’evidenza empirica nel caso dell’India," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 64(3), pages 329-364.
  5. Agbloyor, Elikplimi Komla & Abor, Joshua Yindenaba & Adjasi, Charles Komla Delali & Yawson, Alfred, 2014. "Private capital flows and economic growth in Africa: The role of domestic financial markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 30(C), pages 137-152.
  6. Pasali, Selahattin Selsah, 2013. "Where is the cheese ? synthesizing a giant literature on causes and consequences of financial sector development," Policy Research Working Paper Series 6655, The World Bank.
  7. Chiu, Alice & Headey, Derek D. & Zhang, Xiaobo, 2010. "Are India’s Gender Imbalances Inducing Higher Household Savings?," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado, Agricultural and Applied Economics Association 61640, Agricultural and Applied Economics Association.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:4838. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.