Roads and Loans

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.

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