The effects of financial development in the short and long run

Scott Fulford

No 741, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: Although many view financial access as a means of reducing poverty or increasing growth, empirical studies have produced contradictory results. One problem is that most studies cover only a short time frame and do not consider dynamic effects. I show that introducing credit creates a boom in consumption and reduces poverty initially, but eventually reduces mean con- sumption because credit substitutes for precautionary wealth. Using new consistent consump- tion data, my empirical findings show that increased access to bank branches in rural India increased consumption initially and reduced poverty, but consumption later fell and poverty rose.

Keywords: financial access; precaution; development; India (search for similar items in EconPapers)
JEL-codes: D91 O16 (search for similar items in EconPapers)
Date: 2010-06-15, Revised 2011-05-31
New Economics Papers: this item is included in nep-dev and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published as "The effects of financial development in the short and long run: Theory and evidence from India", 2013. Journal of Development Economics 104, 56-72

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