How has financial deepening affected poverty reduction in India? Empirical analysis using state-level panel data

This article examines, empirically, whether financial deepening has contributed to poverty reduction in India. Using unbalanced panel data for 28 Indian states and union territories covering seven time periods (1973, 1977, 1983, 1987, 1993, 1999 and 2004), we empirically analyse whether financial deepening has any effect on poverty. Empirical results clearly indicate that financial deepening significantly decreases poverty, controlling for international openness, inflation rate and economic growth. These results are robust to changes in the poverty ratios in rural areas, urban areas and the whole economy.