Local banking and manufacturing growth: Evidence from India

Abstract

This paper explores the relationship between local banking development and the growth of the manufacturing sector using district-level data from India. The results show that banking development at the local level is important for the growth of manufacturing in the region. We find that sector-specific credit, and not the total credit in the district, has a positive impact on local manufacturing output; suggesting that sector-specific lending technology is important. Further, we find that the constraints due to credit availability for manufacturing are lower in districts with higher literacy levels.

Keywords

• Financial development
• Manufacturing growth
• Regional economic activity
• Bank credit
• Human capital