Econometric analysis of credit constraints of chinese rural households and welfare loss

Abstract

Using recent survey data of Chinese rural households, we estimate the impact of credit constraints on Chinese rural households’ income and consumption. Results reveal that 71% of rural households are rationed in the credit markets. The credit constraints have significant negative effects on the income and consumption of rural households. The expenditures on education and medical treatments, the size of land holdings, household head education and the balance of financial capital all affect the demand of credit. Personal connections (relationship) are the most important determinate of the supply for credit.

Acknowledgements

We would like to thank an anonymous referee for the insightful comments that greatly improved the article. Li Rui's research is supported by the National Natural Science Foundation of China (project serial number: 70573057).

Notes

¹ Agricultural Development Bank of Pakistan, which provided about 90% of formal loans in rural areas of Pakistan.