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Experience of Communal Conflicts and Inter-group Lending

Author

Listed:
  • Raymond Fisman

    (Boston University and NBER)

  • Arkodipta Sarkar

    (London Business School)

  • Janis Skrastins

    (Washington University in St. Louis)

  • Vikrant Vig

    (London Business School)

Abstract

We provide microeconomic evidence on the link between ethnic frictions and market efficiency, using dyadic data on managers and borrowers from a large Indian bank. Our analysis builds on the idea that exposure to religion-based communal violence may intensify branch managers’ same-group preferences, and thus result in lending decisions that are more sensitive to a borrower’s religion. We find that, in our sample of Hindu loan officers, those with substantial riot exposure prior to joining the bank lend relatively less to Muslim borrowers. Riot-exposed officers’ loans to Muslims are also less likely to default, suggesting that the lower lending rate for Muslims is driven by taste-based discrimination. This bias is persistent across a bank officer’s tenure, suggesting that the economic costs of ethnic conflict are long-lasting, potentially spanning across generations.

Suggested Citation

  • Raymond Fisman & Arkodipta Sarkar & Janis Skrastins & Vikrant Vig, 2018. "Experience of Communal Conflicts and Inter-group Lending," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-323, Boston University - Department of Economics.
  • Handle: RePEc:bos:iedwpr:dp-323
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    File URL: https://sites.bu.edu/fisman/files/2018/12/riot_experience_lending_rf23.pdf
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    Cited by:

    1. Bharti, Nitin Kumar & Roy, Sutanuka, 2023. "The early origins of judicial stringency in bail decisions: Evidence from early childhood exposure to Hindu-Muslim riots in India," Journal of Public Economics, Elsevier, vol. 221(C).
    2. Hurtado, Agustin & Sakong, Jung, 2022. "The effect of minority bank ownership on minority credit," Working Papers 325, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    3. Chen, Shuai & Ge, Erqi, 2022. "The Anti-Corruption Campaign and the Inter-Generational Transmission of Working in Bureaucracy: Evidence from China," GLO Discussion Paper Series 1159, Global Labor Organization (GLO).
    4. Mocan, Naci & Osborne-Christenson, Eric, 2022. "In-Group Favoritism and Peer Effects in Wrongful Acquittals: NBA Referees as Judges," IZA Discussion Papers 15195, Institute of Labor Economics (IZA).
    5. Ash, Elliott & Asher, Sam & Bhowmick, Aditi & Bhupatiraju, Sandeep & Chen, Daniel L. & Devi, Tatanya & Goessmann, Christoph & Novosad, Paul & Siddiqi, Bilal, 2022. "Measuring Gender and Religious Bias in the Indian Judiciary," TSE Working Papers 22-1395, Toulouse School of Economics (TSE).
    6. D'Acunto, Francesco & Ghosh, Pulak & Jain, Rajiv & Rossi, Alberto G., 2022. "How costly are cultural biases?," LawFin Working Paper Series 34, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).
    7. Chen, Shuai & Ge, Erqi, 2022. "The Anti-Corruption Campaign and the Inter-Generational Transmission of Working in Bureaucracy: Evidence from China," IZA Discussion Papers 15569, Institute of Labor Economics (IZA).
    8. Anastasia Cozarenco & Ariane Szafarz, 2024. "How to identify lending bias when the lender's goal is not profit?," Working Papers CEB 24-007, ULB -- Universite Libre de Bruxelles.
    9. Belmonte, Alessandro & Di Lillo, Armando, 2021. "Backlash against affirmative action: Evidence from the South Tyrolean package," European Economic Review, Elsevier, vol. 137(C).

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