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How has Financial Deepening Affected Poverty Reduction in India? Empirical Analysis Using State-Level Panel Data

Discussion Papers


by INOUE Takeshi and HAMORI Shigeyuki
August 2010


This paper examines empirically whether financial deepening has contributed to poverty reduction in India. Using unbalanced panel data for 28 states and union territories between 1973 and 2004, we estimate models in which the poverty ratio is explained by financial deepening, controlling for international openness, inflation rate, and economic growth. From the dynamic generalised method of moments (GMM) estimation, we find that financial deepening and economic growth alleviate poverty, while international openness and the inflation rate have the opposite effect. These results are robust to changes in the poverty ratios in rural areas, urban areas, and the whole economy.

Keywords: Financial Deepening; GMM; India; Poverty Reduction
JEL classification: G00, O11

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