Roads and Loans

Abstract

Does financing respond to changes in productive opportunities, even for the world’s poor? We answer this question by examining the response of private bank financing to an infrastructure program that brought road access to unconnected Indian villages. This program prioritized roads for villages above specific population thresholds, allowing us to exploit the resultant discontinuities for identification. Using detailed data from a large bank, we find that 75 % more villagers get loans, and the average amount lent to them is 30 % –35 % higher, in villages just above these thresholds. District-level analyses further suggest that roads and loans are complements in the growth process. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online.