Are China's Financial Reforms Leaving the Poor Behind - Harvard ...

mobilize deposits even as income rise. Of the 13 percent annual fall in effectiveintermediation rates in the poorest quartile during the period, loan performance accountsfor 10 percent, the loan to deposit ratio–5 percent (it increases), and increasing depositsrelative to deposits accounts for 5 percent.We also estimate a set of regressions of financial performance indicators on thelog of real income per capita, comparing the results for 1994 and 1997 (Table 8).Because of our concern that differences between rich and poor provinces may be drivenby differences in provincial policies or other unobserved provincial characteristics ratherthan income differences, we run the regressions with and without controls for provincialdifferences. In all regressions, we control for differences in bank type. To control forboth provincial differences and bank type, we include dummy variables which areinteractions of province and bank type dummies. This specification is very general inthat it allows bank type to have different effects in different provinces, and the effects ofincome per capita are identified by variation among banks of the same type in the sameprovince.The results confirm many of the previous findings and help to quantify therelationships. Controlling for provincial differences, higher income per capita issignificantly associated with higher intermediation rates, measured by either performingloans or total loans divided by income. This positive association is greater in 1997 thanin 1994. A one percent increase in income increased the effective intermediation rate by0.15 percent in 1994 and 0.21 percent in 1997. However, dropping provincial controls,the relationships are no longer statistically significant.23