Princeton University Library Catalog

Consumption Smoothing and Infant Mortality: Evidence from the Indian Social Banking Experiment

Bijapurkar, Aparajita [Browse]
Senior thesis
Vogl, Tom S. [Browse]
Princeton University. Department of Economics [Browse]
Class year:
74 pages
Restrictions note:
Walk-in Access. This thesis can only be viewed on computer terminals at the Mudd Manuscript Library.
Summary note:
A critical function of banks is to provide households with opportunities to cope with risk and smooth their consumption over time. The rural sector in India houses nearly three quarters of India’s population, a large proportion of which is economically dependent on low and uncertain agricultural incomes. Thus, the availability of mechanisms of consumption smoothing is of particular relevance for rural Indian households. Between 1977 and 1990, India’s central banking institution mandated that a commercial bank could open a bank branch in a location that already had a bank only if it opened four branches in locations with no previous bank branches. While there is substantial robust evidence of improvements in poverty, wage and employment outcomes as a result of this banking regulation, there is a void in the research pertaining to its effects on health outcomes. In this paper, I synthesize two distinct strands of research, pertaining to (a) the relationship between infant mortality and income shocks, and (b) consumption smoothing. Using micro-level data on infant mortality from the National Family Health Survey, merged with banking data from the Reserve Bank of India, I examine whether rural households’ access to commercial banking institutions impacts the sensitivity of infant mortality to an aggregate economic shock. I find robust evidence that households in states that had lower levels of financial development prior to the banking regulation were associated with larger decreases in infant mortality in the event of a drought, than households in states that were initially more financially developed. This is because access to commercial banks provides households with the opportunity to borrow and save in the market for formal finance. As a result, households are not compelled to divert household resources away from infants (the most vulnerable members of households) and towards the most productive members of the households. Thus, my results suggest that infant mortality can be used to test hypotheses pertaining to consumption smoothing in rural India. From the perspective of public policy, my results point to the need for the state to assume a prominent and active role in making effective formal opportunities for consumption smoothing available and accessible in rural areas.