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Cultural Proximity and Loan Outcomes

Raymond Fisman, Daniel Paravisini and Vikrant Vig

American Economic Review, 2017, vol. 107, issue 2, 457-92

Abstract: We present evidence that cultural proximity (shared codes, beliefs, ethnicity) between lenders and borrowers increases the quantity of credit and reduces default. We identify in-group lending using dyadic data on religion and caste for officers and borrowers from an Indian bank, and a rotation policy that induces exogenous matching between them. Having an in-group officer increases credit access and loan size dispersion, reduces collateral requirements, and induces better repayment even after the in-group officer leaves. We consider a range of explanations and suggest that the findings are most easily explained by cultural proximity serving to mitigate information frictions in lending.

JEL-codes: D82 D83 G21 G28 O16 Z12 Z13 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/aer.20120942
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Working Paper: Cultural proximity and loan outcomes (2017) Downloads
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Working Paper: Cultural Proximity and Loan Outcomes (2012) Downloads
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Handle: RePEc:aea:aecrev:v:107:y:2017:i:2:p:457-92