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Finance, law and poverty: Evidence from India

Meghana Ayyagari, Thorsten Beck () and Mohammad Hoseini

Journal of Corporate Finance, 2020, vol. 60, issue C

Abstract: Using state-level data from India over the period 1983–2005, this paper shows a strong negative relationship between financial depth (as measured by credit volume) and rural poverty. Instrumental variable regressions suggest that this relationship is robust to endogeneity biases. Furthermore, financial deepening has a bigger impact on rural poverty alleviation than outreach (as measured by branch penetration). We find suggestive evidence that financial deepening reduced poverty rates especially among self-employed in the rural areas and also supported an inter-state migration trend from rural areas into the tertiary sector in urban areas, consistent with financial deepening being driven by credit to the tertiary sector. Our findings suggest that financial deepening contributed to poverty alleviation in rural areas by fostering entrepreneurship and inducing geographic-sectoral migration.

Keywords: Financial liberalization; Economic development; Poverty alleviation; Entrepreneurship; Migration; India (search for similar items in EconPapers)
JEL-codes: G21 G28 O15 O16 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jcorpfin.2019.101515

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