How Infrastructure and Financial Institutions Affect Rural Income and Poverty: Evidence from Bangladesh

Abstract

The mechanisms by which the poor benefit from economic growth remain a topic of debate in development literature. We address this issue in the context of rural Bangladesh, using a pooled dataset of three household panels between 1991–2001. Expansion of irrigation, paved roads, electricity, and access to formal and informal credit have (through different veins) led to higher rural farm and non-farm incomes, accounting for exogenous local agroclimatic endowments that explain a large part of the variation in the growth of infrastructure and credit programmes. However, this has not translated into substantial reductions in poverty for the poorest households.