country. The source of the expected real GDP growth data is World Economic Outlook by the IMF (IMF, April 2010). According to our results, this variable is not statistically significant. Deposit rate, on the other hand, is significantly positively correlated with the number of deposit accounts.

Among the infrastructure indicators, electricity consumption does not have a significant relationship with deposit penetration, whereas the number of land line and cell phone users is positively correlated with the number of deposit accounts. Financial sector infrastructure indicators, such as the number of commercial bank branches per 100,000 adults and per 1,000 square kilometer that measure the geographic and demographic outreach of the financial system, are positively and significantly related to deposit penetration.

The legal environment, measured by the index of the strength of legal rights for borrowers and lenders, is also closely related to deposit penetration. A favorable legal environment for lending may enable banks to operate more profitably through lending and to grow, eventually leading to an expansion of deposit services. The analysis of the correlation between deposit account penetration and other indicators of favorable credit environment also produces similar findings. Moreover, the availability of explicit deposit insurance scheme suggests higher deposit penetration.

A greater degree of competition, as proxied by the concentration ratio in the banking sector, is associated with greater deposit penetration. This is in line with earlier studies (see, for example, Demirgüç-Kunt and Huizinga, 1999) arguing that competition in the banking sector would increase efficiency, and in turn, would lead to a larger variety of products and services offered to a larger depositor base.<sup>5</sup> The analysis of the correlation between the interest rate spread (lending rate minus deposit rate) and deposit account penetration lends support to this argument (not shown in Table 6). Countries with lower interest rate spreads also show a higher number of deposit accounts per 1,000 adults.

Analysis of the volume of deposits normalized by GDP offers further insight into the factors affecting financial access (Table 7). Although inflation, as a proxy of macroeconomic stability, is not significantly correlated with the number of deposit accounts, it is negatively related to deposit volume. In other words, macroeconomic stability seems to matter for the decision of how much money to put in the bank account, but not for having an account at all. This result is consistent with the evidence of a simultaneous decrease in deposit volume and increase in number of accounts despite the financial crisis. It also supports the view that a deposit account is a basic service, and having one is inelastic with respect to macroeconomic disturbances.

The analysis of the changes in the number of deposit accounts per 1,000 adults between 2008 and 2009 highlights the importance of macroeconomic stability and growth for improving

> 5 Note that a higher degree of competition and lower concentration are not necessarily the same. Concentration is only one dimension of competition, and hence used as a proxy for competition.

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