Working Paper: NBER ID: w30057
Authors: Julia Fonseca; Adrien Matray
Abstract: We study a financial inclusion policy targeting Brazilian cities with low bank branch coverage using data on the universe of employees from 2000–2014. The policy leads to bank entry and to similar increases in both deposits and lending. It also fosters entrepreneurship, employment, and wage growth, especially for cities initially in banking deserts. These gains are not shared equally and instead increase with workers’ education, implying a substantial increase in wage inequality. The changes in inequality are concentrated in cities where the initial supply of skilled workers is low, indicating that talent scarcity can drive how financial development affects inequality.
Keywords: financial development; economic growth; wage inequality; Brazil; government-owned banks
JEL Codes: G2; H8; J2; J3; O1; O43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of government-owned banks in Brazilian cities (N16) | financial development (O16) |
| financial development (O16) | average size of establishments (L25) |
| financial development (O16) | employment (J68) |
| financial development (O16) | average wages (J31) |
| financial development (O16) | wage inequality (J31) |
| financial development (O16) | demand for skilled labor (J24) |
| demand for skilled labor (J24) | wage inequality (J31) |