Experience of Communal Conflicts and Intergroup Lending

Raymond Fisman, Arkodipta Sarkar, Janis Skrastins and Vikrant Vig

Journal of Political Economy, 2020, vol. 128, issue 9, 3346 - 3375

Abstract: We provide microeconomic evidence on ethnic frictions and market efficiency, using dyadic data on managers and borrowers from a large Indian bank. We conjecture that, if exposure to religion-based communal violence intensifies intergroup animosity, riot exposure will lead to lending decisions that are more sensitive to a borrower’s religion. We find that riot-exposed Hindu branch managers lend relatively less to Muslim borrowers and that these loans are less likely to default, consistent with riot exposure exacerbating taste-based discrimination. This bias is persistent across a bank officer’s tenure, suggesting that the economic costs of ethnic conflict are long-lasting, potentially spanning across generations.

Date: 2020
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Working Paper: Experience of Communal Conflicts and Inter-group Lending (2018)
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