Princeton University Library Catalog
- Author/Artist:
- Bijapurkar, Aparajita [Browse]
- Format:
- Senior thesis
- Language:
- English
- Advisor(s):
- Vogl, Tom S. [Browse]
- Department:
- Princeton University. Department of Economics [Browse]
- Class year:
- 2013
- Description:
- 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.
