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The Effects of Political Reservations on Credit Access and Borrowing Composition: New Evidence from India

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  • Ao, Chon-Kit
  • Chatterjee, Somdeep

Abstract

We estimate the impacts of mandated political reservation for minorities on household credit access and borrowing behavior. To identify causal effects, we exploit the exogenous state-time variation in the allocation of constituencies (electoral districts) to the two reserved minority groups in Indian states. Using a household level panel data with observations before and after the redistricting, we find that the effect is concentrated on the disadvantaged population groups. Political reservation for Scheduled Tribes (STs) increases household probability of getting a loan by 3.7 percentage points, while political reservation for Scheduled Castes (SCs) has no effect on the likelihood of getting a loan. However, conditional on having a loan, reservation for SCs does lead to fewer but larger loans. We also find considerable changes in household borrowing composition.

Suggested Citation

  • Ao, Chon-Kit & Chatterjee, Somdeep, 2018. "The Effects of Political Reservations on Credit Access and Borrowing Composition: New Evidence from India," GLO Discussion Paper Series 227, Global Labor Organization (GLO).
    • Handle: RePEc:zbw:glodps:227
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    References listed on IDEAS

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    8. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(4), pages 1371-1411.
    9. Kaletski, Elizabeth & Prakash, Nishith, 2016. "Does Political Reservation for Minorities Affect Child Labor? Evidence from India," World Development, Elsevier, vol. 87(C), pages 50-69.
    10. Francesca Refsum Jensenius, 2015. "Development from Representation? A Study of Quotas for the Scheduled Castes in India," American Economic Journal: Applied Economics, American Economic Association, vol. 7(3), pages 196-220, July.
    11. Bardhan Pranab K. & Mookherjee Dilip & Parra Torrado Monica, 2010. "Impact of Political Reservations in West Bengal Local Governments on Anti-Poverty Targeting," Journal of Globalization and Development, De Gruyter, vol. 1(1), pages 1-38, January.
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    Cited by:

    1. Chatterjee, Somdeep & Pal, Debdatta, 2021. "Is there political elite capture in access to energy sources? Evidence from Indian households," World Development, Elsevier, vol. 140(C).
    2. Balakumar, Suganya & Maitra, Debasish, 2023. "Do political connections or elite capture matter in access to financial services? Evidence from Indian households," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).

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    More about this item

    Keywords

    Affirmative action; Political reservation; Credit access; Borrowing composition;
    All these keywords.

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J78 - Labor and Demographic Economics - - Labor Discrimination - - - Public Policy (including comparable worth)
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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