Infrastructure and Finance: Evidence from India's GQ Highway Network
35 Pages Posted: 6 Jun 2019
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Infrastructure and Finance: Evidence from India's GQ Highway Network
Infrastructure and Finance: Evidence from India's GQ Highway Network
Infrastructure and Finance: Evidence from India's Gq Highway Network
Date Written: June 5, 2019
Abstract
We use the construction of India’s Golden Quadrangle (GQ) central highway network, together with comprehensive loan data drawn from the Reserve Bank of India, to investigate the interaction between infrastructure development and financial sector depth. We identify a disproportionate increase in loan count and average loan size in districts along the GQ highway network using stringent specifications with industry and district fixed effects. Our results hold in straight-line IV frameworks and are not present in ‘placebo tests’ with another highway that was planned to be upgraded at the same time as GQ but subsequently delayed. Importantly, however, results are concentrated in districts with stronger initial financial development, suggesting that while financing does respond to large infrastructure investments and help spur real economic outcomes, initial financial sector development might play an important role in determining where real activity will grow.
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