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Prices or Knowledge? What Drives Demand for Financial Services in Emerging Markets?





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    • Harvard Business School, Harvard University, and the World Bank, respectively. The authors thank the World Bank Jakarta office for its assistance and support throughout this project. The authors also thank seminar participants at the NBER Corporate Finance meetings, Oxford University, the NEUDC Tufts Conference, the World Bank Global Seminar on Financial Literacy and Consumer Protection, the World Bank Finance Seminar, and the OECD-Bank Indonesia International Conference on Financial Education, and Anna Lusardi, David McKenzie, Jeremy Shapiro, and Jeremy Tobacman for helpful comments. Financial support from the World Bank and HBS Division of Research and Faculty Development is greatly appreciated.


Financial development is critical for growth, but its microdeterminants are not well understood. We test leading theories of low demand for financial services in emerging markets, combining novel survey evidence from Indonesia and India with a field experiment. We find a strong correlation between financial literacy and behavior. However, a financial education program has modest effects, increasing demand for bank accounts only for those with limited education or financial literacy. In contrast, small subsidies greatly increase demand. A follow-up survey confirms these findings, demonstrating that newly opened accounts remain open and in use 2 years after the intervention.

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