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Finance, Law and Poverty: Evidence from India

Ayyagari, M., Beck, T. ORCID: 0000-0001-8382-2066 and Hoseini, M. (2019). Finance, Law and Poverty: Evidence from India. Journal of Corporate Finance,

Abstract

Using state-level data from India over the period 1983 to 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.

Publication Type: Article
Additional Information: © Elsevier 2019. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Financial Liberalization, Economic Development, Poverty Alleviation, Entrepreneurship, Migration, India
Subjects: D History General and Old World > DS Asia
H Social Sciences > HG Finance
H Social Sciences > HV Social pathology. Social and public welfare
K Law
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/22877
[img] Text - Accepted Version
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