Roads and Loans

HKUST IEMS Working Papers No. 2019-61

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Sumit Agarwal, Abhiroop Mukherjee, S Lakshmi Naaraayanan

Does financing respond to changes in productive opportunities even for the world's poor? We shed light by examining the response of private bank financing to a rural road-building program in India. The program prioritized roads for villages above explicit population thresholds, allowing us to use discontinuities in treatment probability for identification. We find large financing responses - odds of a villager getting a loan is twice as high, and the average loan amounts are about 50% higher - for villages just above the threshold compared to those below. Benefits seem to flow disproportionately to those traditionally disadvantaged in rural societies.

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