Financial outreach, bank deposits, and economic growth

This paper explores the relationship between financial outreach and economic growth, both theoretically and empirically. Our theoretical framework suggests that financial outreach reduces household cash holdings and increases bank deposits by lowering transaction costs from intermediated activities, thereby boosting economic growth. This effect is more pronounced in densely populated and technologically underdeveloped areas. Empirical evidence from 281 prefecture-level Chinese cities supports the theory that financial outreach indirectly improves economic growth through bank deposits. These findings help explain the finance-growth puzzle in the context of China's economic dynamics.