China Economic Review: Yan YUAN, Lihe XU

CHIECO-00811; No of Pages 15
China Economic Review xxx (2015) xxxxxx
Contents lists available at ScienceDirect
China Economic Review
Are poor able to access the informal credit market?

Evidence from rural households in China
Yan YUAN, Lihe XU
Research Institute of Economics and Management (RIEM), Southwestern University of Finance and Economics (SWUFE), 501 RIEM Hall, 55 Guanghuacun Street, Chengdu,
Sichuan 610074, China
a r t i c l e i n f o a b s t r a c t
Article history: The poor are often excluded from formal credit markets, but few empirical studies in literature
Received 16 December 2013 have investigated whether the poor are constrained in the informal credit market. This paper
Received in revised form 13 July 2014 uses recent micro data of rural China to answer this question. An instrumental variable model is
Accepted 3 January 2015
estimated to account for potential endogeneity issues. Results show that poorer households
Available online xxxx
have lower probability of entering the informal credit market. Further examination shows that
the poor are limited by social network and that they have no nancial means to invest in their
JEL classication: social capital to expand their social network. Our ndings shed light on potential solutions of
O16
reducing poverty in rural areas.
O12
2015 Elsevier Inc. All rights reserved.
G21
Keywords:
Informal credit
Social capital
Formal credit constraint
Poor
China
1. Introduction
The poor are often excluded from formal credits (e.g., Ray, 1998; Shoji, Aoyagi, Kasahara, Sawada, & Ueyama, 2012), partially due
to the lack of collaterals or guarantors. Considering risk factors, they are more likely to default, if granted loans (Ray, 1998). As a
consequence, the poor are not able to enjoy the benets brought about by formal credits, e.g., welfare improvement through
consumption smoothing mechanism (Besley, 1995; Eswaran & Kotwal, 1989). They may then resort to informal credit markets and
alleviate their nancial constraints (Guirkinger, 2008).
However, the informal credit market may not remedy the poor; they may still be excluded from economic development brought
about by informal credits if they are also constrained in informal credit market. As argued by Morduch (1990), Pender (1996) and Ray
(1998), people do not have equal access to informal credit markets, implying that the poorest of the poor may be informally credit
constrained. However, previous studies do not provide any direct evidence that the poor are constrained in the informal credit
markets. Thus, the purpose of this paper is to ll the gap in the literature and investigates whether the poor have access to informal
credit markets in rural China. Furthermore, using an instrumental variable (IV) approach, this paper intends to test the two
mechanisms through which the poor are discriminated in the informal credit market, namely, the social capital mechanism
proposed by Shoji et al. (2012), and the default risk mechanism.
Corresponding author at: School of International Business (SIB), Southwestern University of Finance and Economics (SWUFE), Chengdu, Sichuan 610074, China.
E-mail addresses: yuanyan@swufe.edu.cn (Y. Yuan), lhxu@swufe.edu.cn (L. Xu).
http://dx.doi.org/10.1016/j.chieco.2015.01.003
1043-951X/ 2015 Elsevier Inc. All rights reserved.
Please cite this article as: Yuan, Y., & Xu, L., Are poor able to access the informal credit market? Evidence from rural households in
China, China Economic Review (2015), http://dx.doi.org/10.1016/j.chieco.2015.01.003
2 Y. Yuan, L. Xu / China Economic Review xxx (2015) xxxxxx
It may have important implications for poverty-reduction policies in developing countries. If the poor have difculties in entering
the informal as well as the formal credit markets, they are more likely to be trapped in poverty deeper and longer. In this light,
this paper intends to provide direct empirical evidence for the poor to access informal credits using the 2011 China Household Finance
Survey (CHFS).
Results show that the poorest of the poor are more likely to be constrained in the informal credit market. The results are robust
after we adjust for endogeneity and using varying economic indicators and thresholds for poverty. In addition, we investigate whether
social capital mechanism proposed by Shoji et al. (2012) is conducive to the fact that the poor are more likely to be informally
credit constrained. For example, in the case of poor farmers, they are not able to use the safety net provided by the informal bilateral
arrangement since they have low investments in social capital. Furthermore, using negative income shock as a proxy of default risk,
we test whether it contributes to the higher probability of credit constraints for the poor (Ray, 1998). Our results support the social
capital mechanism but not the default risk mechanism.
The rest of paper is organized as follows. Section 2 provides a review of related literature. Section 3 describes the dataset and
variables. Section 4 presents the empirical framework, Section 5 reports and discusses the empirical results and Section 6 concludes
the paper.
2. Literature review
Our paper is closely associated with the literature of the effects of informal credit on farmers' income and economic development
issues (see Binswanger & Khandker, 1995; Jia, Xiang, & Huang, 2013; Khandker, 1998; Lee & Sawada, 2010; Li & Li, 2004; Ma & Yang,
2011). Li and Li (2004) nd that private lending helps Chinese farmers improve their level of consumption, production and manage-
ment and thereby improving their income and welfare. Studies in Bangladesh (Khandker, 1998; Pitt & Khandker, 1998) and India
(Binswanger & Khandker, 1995) show that the development of rural nance contributes to increased agricultural productivity and
higher income. Ma and Yang (2011) conclude that private lending promotes local economic development in rural China by increasing
entrepreneurial possibilities for farmers and increase their non-agricultural income. Allen, Qian, and Qian (2005) show that the
development of informal nancial markets may explain the economic growth of China given its nancial systems and laws are yet
to be developed. Lee and Sawada (2010) indicate that rural households reduce their precautionary savings if they have access to
the informal credit market. However, Jia et al. (2013) argue that micronance not formal or informal loans increase farmers' income
by increasing their off-farm working time. This strand of literature motivates this study by showing the importance of examining the
informal credit market in China.
The other strand of literature investigates the determinants of farmers' access to informal credits, one of which is social network
(Dufhues, Buchenrieder, Quoc, & Munkung, 2011). Most of the informal borrowings are traded among relatives and friends, or their
social network (Brandt & Hosios, 2010; Calum & Kong, 2010), and only a small percentage from nancial associations. For the poor
household group, they may only maintain their basic needs on food consumption and are not able to increase the investment on,
e.g., education (Galor & Zeira,1993) and social capital (Shoji et al., 2012), which may constrain their accessibility to informal credit
market (Santos & Barrett, 2011). In the long term, under the formal and informal credit constraints, they may get into Poverty
Trap (You, 2014).
Whether the poor spend more or less on social capital is still an open question. The poor know that they are unlikely to get a loan
from banks; hence they may increase their investment on social capital ex ante in order to have better chances to obtain access to
informal credits. As examined by Chen and Zhang (2012) with data in 3 rural villages in Guizhou, China, the poor do not spend less
than the rich on social activities. With more recent data representative of rural China, part of this paper intends to explore whether
the poor invest more or less on their social capital than their rich counterparts.
We also relate our paper to the literature of poverty since we conne part of our discussion on poverty measurement.
Glewwe and Van Der Gaag (1990) is the rst to conclude that different indicators of poverty lead to different policy implications.
As a result, a number of poverty indicators have been used in literature (e.g., income, assets, consumption, etc.), at both
household and per capita level. Both accumulated asset and consumption variables are better measures if we are concerned
about long-term poverty (Carter & Barrett, 2006; Carter & May, 2001; Glauben, Herzfeld, & Wang, 2012; Jalan & Ravallion,
1999). Because income at one shot may suffer from positive or negative shocks, which may not be observable from cross-
sectional data. Both absolute and relative denitions have been employed empirically (e.g., Glauben et al., 2012; Green &
Hulme, 2005; Gustafsson & Li, 2004; Zhang & Wang, 2006). In this paper, we follow previous literature and use multiple
measures of poverty for robustness check.
3. Data description and summary statistics
Data are obtained from the China Household Finance Survey (CHFS) conducted by Southwestern University of Finance and Economics
and People's Bank of China (China's central bank) in year 2011. This dataset covers 8438 households, 320 villages (in rural areas) or
communities (in urban area) in 80 counties of 25 provinces,1 out of which 3244 households are located in rural areas, accounting for
38.45% of all the sample households. The survey contains detailed information on households' nancial assets and debts, income and
expenditure as well as household demographics. The nal sample size used for empirical analysis is 3120 households
1
The provinces are Beijing, Tianjin, Hebei, Shanxi, Liaoning, Jilin, Heilongjiang, Shanghai, Jiangsu, Zhejiang, Anhui, Jiangxi, Shandong, Henan, Hubei, Hunan,
Guangdong, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Shaanxi, Gansu, and Qinghai.
Y. Yuan, L. Xu / China Economic Review xxx (2015) xxxxxx 3
scattered in 92 villages across 22 provinces2 after deleting observations with extreme and missing values in at least one of our
major variables.3
Figure 1 shows the average movement of assets, expenditure and income against wealth percentiles based on per capita
asset. The vertical axis shows per capita and total asset, expenditure and income measured in yuan. It shows that total net in-
come and per capita net income present a very different pattern across wealth levels. It may indicate that a different group of
poor households may result if income measures are used. Income at one shot may suffer from positive or negative shocks,
which may not be observable from cross-sectional data. The accumulated assets and consumption are treated as potential can-
didates for poverty if we are concerned about long-term poverty (Carter & Barrett, 2006; Carter & May, 2001; Glauben et al.,
2012; Jalan & Ravallion, 1999; You, 2014).
Table 1 provides descriptive statistics of variables in our study. Panel A displays the dependent variables, and Panel B the explan-
atory variables. 45% rural households have informal borrowings. Here we aggregate borrowings for different purposes and use only
one dummy variable to denote entry in the informal credit market. It could be that once they are able to enter the market, they
may be able to borrow from informal credit for other purposes.4 Second, there might be reallocation after borrowing for one purpose,
e.g., constructing a house. Once they have the money borrowed, which might be more than enough, they may divert it for other
purposes of investment or consumption, which is unobservable. For the above reasons, we use only one variable to denote the
informal credit accessibility.
One concern5 might arise for measuring accessibility of informal credits with the use of informal credits. A household may have
access to informal credits; however, if it does not have nancial demands, it becomes unobservable. Including these households in
our analysis may lead to biased estimation results. Fortunately, the dataset allows us at least partially to detect it. The survey asks
the question why a household does not have a formal loan. We treat the households as no nancial demand, whose answer to the
question is not needed and in the meantime who do not have informal credits. It makes us even more comfortable that only
0.43% rural households do not have nancial demands in the sample data. As a result, these households are removed from our nal
sample for empirical analysis.
Total investment in social capital is measured by transferring expenditure to other households, reaching 3710 yuan per capita.6 It
includes expenditure on festival, celebration, or other social spending, it is about 12% of households' total expenditure.
As discussed previously, we follow the method of Jalan and Ravallion (1999) and use expenditure per capita, asset value per capita
to measure the poverty (wealth). On average, per capita expenditure is 8413 yuan and per capita asset is 71,649 yuan.7
In rural China, there are 17% households categorized as poor if using international line at $ 1.00 per day, and 32% if international
line rises to $ 1.50 per day.8 Only 4% households are poor according to China's poverty line in 2008/2009 (1196 yuan per annum), and
it rises to 15% according to the new poverty line in 2010 (2300 yuan per annum).
The questionnaire contains a subjective question on risk attitude, Assume you have assets to invest, which type of project would
you choose? Five choices are provided, i.e., a) high risks with high returns; b) slightly above-average risks with slightly above-
average returns; c) average risks with average returns; d) slightly below-average risks with slightly below-average returns; and e)
unwilling to take any risks. We dene a binary variable, risk attitude, as 1 if a household is not willing to take any risks, and 0 other-
wise. In our sample, 50% households are not willing to take any risks.
Social network is dened and measured in a number of ways in previous literature. Examples include participation in community
work (Shoji et al., 2012), total expenditure and income of social activities (Ma & Yang, 2011), whether they know each other (Santos &
Barrett, 2011) and how many people may lend to you (Yuan & Xu, 2013). This paper uses number of the adults' sibling to capture the
social network. It has the advantage of being exogenous, since the number of siblings is not likely to be affected by the access to the
credit while it is closely related to the households' social network. A household has an average of 7 siblings.
19% of households have suffered a negative income shock in 2010 caused by sickness, shorter working time, divorce or loss from
nancial investment. It provides us with evidence that the total net income may not represent the long-term wealth, especially in the
cross-section data when income shocks are not observed. It also rationalizes our argument earlier that we do not use current income
to measure household wealth.
10% rural households have their own commercial business, we dene self-employed as 1 if a household has a business,
and 0 otherwise. A typical household is aged at 41.6 years, cultivates 4.6 mu farmland, has 4 members,9 63% of which are laborers.
49% adults in a household have education at or below primary school, and 34% at junior high school, and only 17% at or above
high school.
2
Beijing, Tianjin and Qinghai are not selected in the rural areas. The households who live in cities for more than 6 months are in the urban sample; they are excluded
from our sample.
3
The variables are introduced in Section 4.1.
4
19% of households have borrowings for more than one purpose.
5
We thank an anonymous referee for pointing it out.
6
Social capital can be measured by scale and distance between social network (Dufhues et al., 2011), expenditure and income during community activities (Ma &
Yang, 2010; Shoji et al., 2012), etc. Since the purpose of this paper is to test whether the poor spend less on social capital, we use the spending on social activities as
the indicator of investment on social capital.
7
Appendix 1 reports how we calculate the total asset and expenditure. There are 27% of rural households relying on the non-agricultural income in year 2010. The net
income per capita of farmers is 6365 yuan, 7% higher than 5919 yuan of the China Statistical Yearbook 2011.
8
The average exchange rate of US dollar to Chinese yuan is 6.7695 in 2010.
9
A household size of 4 persons is consistent with the China Population Census in year 2010.
Percentile of wealth distribution all over the countryside of China
1,000,000
100,000
10,000
1,000
10 20 30 40 50 60 70 80 90 100
Percentile of distribution of asset value per capita
total assets total expenditure total net income

asset value per capita expenditure per capita net income per capita
Notes:
1. Data are from 2011 CHFS;
2. Total assets include: fixed productive assets (agricultural and commercial), grain, cash and deposits, financial
assets (stock, bonds and funds), car, housing, and durable goods ;
3. Total expenditures include: food at home and food away from home, cloth ing, housing, utilities (water,
electricity and heating), education (books, newspapers and internet), travel and transportation (fuel) and
maintenance;
4. Total net income: agricultural, non-agricultural incomes, transfer, subsidy, etc. net of total input of farming;
5. Calculations are similar to Jalan & Ravallion (1999). Rural households are classified into 10 groups according
to asset per capita.
Figure 1. Percentile of wealth distribution all over the countryside of China. Notes: 1. Data are from the 2011 Chinese Household Finance Survey (CHFS).; 2. Total assets
include: xed productive assets (agricultural and commercial), grain, cash and deposits, nancial assets (stock, bonds and funds), car, housing, and durable goods; 3.
Total expenditures include: food at home and food away from home, clothing, housing, utilities (water, electricity and heating), education (books, newspapers and in-
ternet), travel and transportation (fuel) and maintenance; 4. Total net income: agricultural, non-agricultural incomes, transfer, subsidy, etc. net of total input of farming;
5. Calculations are similar to Jalan and Ravallion (1999). Rural households are classied into 10 groups according to asset per capita.
We use the percentage of households which are formally credit constrained at the village level to measure nancial development.
We rst dene credit constraints at the household level; it equals to 1 if a household has been rejected by banks or has nancial
demands but did not apply for loans for the fear of rejection and zero otherwise.10 Then we aggregate it and calculate the proportion
of households that are constrained at the village level (excluding the household in question). It at least partially relieves endogeneity
probability of formal credit constraints. 18.6% of rural households in a village are constrained by formal credits. Average per capita net
income in a village is 9144 yuan, and is used to measure the local economic development.
Fig. 2 shows the development of formal and informal nancial markets. Generally, rural households have better access to the
informal sector throughout wealth levels. The higher probability of loans from banks seems to correspond with lower probability
of informal credits. The probability of getting loans becomes easier with increases in wealth (moving from left to right). It may indicate
that formal credit and informal credit are substitutes for each other. It also shows that households in the lowest 10th percentile have
higher formal credits, compared to the 20th and 30th percentiles. It could be due to the policy-oriented loans for poor households.
It also can be found that the correlation between credit and wealth may be nonlinear, which has been accounted for in our
empirical models.
4. Empirical model
The baseline model is specied as follows:
ProbIFC i 1 0 1 SOC i POVERTY i X i V l f l i 1
10
We also redene formal credit constraints for robustness check. It is dened as 1 if their loan is used for the purpose of business investment or agricultural produc-
tion and 0 otherwise.
Table 1
Summary statistics of variables.
Variables Obs Mean Std.
Panel A: Dependent variables

Access to informal credit dummy 3120 0.45 0.50
Festival social spending (yuan) 3120 931 2,291
Celebration social spending (yuan) 3120 1,185 2,400
Other social spending (yuan) 3120 1,594 5,647
Total social spending (yuan) 3120 3,710 7,266
Panel B: Independent variables

Expenditures per capita (yuan) 3120 8,413 10,349
Asset value per capita (yuan) 3120 71,649 268,160
Poor (expenditures per capita lower than $1.00 per day) 3120 0.17 0.37
Poor (expenditures per capita lower than $1.50 per day) 3120 0.32 0.47
Poor (expenditures per capita lower than 1196 yuan per year) 3120 0.04 0.20
Poor (expenditures per capita lower than 2300 yuan per year) 3120 0.15 0.36
Risk attitude (1 = bearing no risks) 3120 0.50 0.50
Social network (number of siblings, person) 3120 7 3.30
Negative income shock 3120 0.19 0.40
Self-employed 3120 0.10 0.30
Landholding (mu) 3120 4.63 10.14
Household size (person) 3120 3.89 1.70
Percentage of labors (%) 3120 63.03 31.73
Average age 3120 41.57 14.80
Share of adults' education at or below primary (%) 3120 49.02 35.39
Share of adults' education at junior high (%) 3120 33.72 30.94
Share of adults' education at or above high (%) 3120 17.24 25.86
Village percentage of formal-credit-constrained (%) 3120 18.63 12.20
Village average per capita net income (yuan) 3120 9,144 6,572
Note: The data come from the 2011 China Household Finance Survey (CHFS). Please refer to Appendix 2 for variables denitions.
where IFCi is a dummy variable, dened as 1 if household i has informal credit for at least one purpose of the following, i.e. agriculture,
business, housing, education, durable goods, nancial assets, medical, or others; and dened as 0 otherwise. POVERTYi is measured
respectively, by per capita expenditure and per capita assets, both in log forms.
SOCi captures the size of social network of household i. This paper uses number of the adults' sibling to capture the social network.
It has the advantage of being exogenous to avoid the endogenous biased in previous studies (Santos & Barrett, 2011; Shoji et al., 2012;
Yuan & Xu, 2013), since the number of siblings is not likely to be affected by the access to the credit while it is closely related to the
households' social network.
Xi denotes other household characteristics, i.e., self-employed, landholding, household size, labor ratio, age and education.
Vl represents the development of formal nancial market and other indicators of economic development in village l. The nancial
development in village l is measured by the percentage of households constrained in formal credit markets in the village, we calculate
it as total households' number of formal nancial constrained except themselves divided by the village size, and formal nancial
constraint dened as 1 if the households have been rejected by a bank or they have nancial demand but have not applied the
Accessibility of formal and informal credit markets against wealth

55
50
45
40
35
30
25
20
15
10
10 20 30 40 50 60 70 80 90 100
percentile of distribution of asset value per capita
access to informal credit market % access to formal credit market %
Figure 2. Accessibility of formal and informal credit markets against wealth. Note: The data come from 2011 China Household Finance Survey (CHFS). Access to informal
credit is dened as 1 if borrowing from informal credit market, and 0 otherwise. Access to formal credit is dened as 1 if borrowing from formal credit market, and 0
otherwise.
loans, and 0 otherwise. The higher the ratio, the lower the nancial development is in the village. Per capita net income at the village
level in year 2010 is used to measure the economic development in village l. fl denotes local xed effects, i is disturbance, and 's, , ,
and are coefcients to be estimated in the model.
We choose the household as the decision-making unit for the following reasons. First, rural economic structures in China exhibit
strong family ties (Wang & Zuo, 1999). Second, evidence shows that in rural China most economic decisions, including the migration
decision, are undertaken to maximize the welfare of the entire family (Zhao, 1999). Third, households are treated as a unit in the
informal credit market and that wealth are reported at the household level.11
5. Empirical results
5.1. Baseline results
Table 2 presents the estimation results from model (1). Columns (1) and (2) show respectively the denition measured by the
logarithm of per capita asset and per capita expenditure. Regardless of the measures used, the more wealth a household holds, the
more likely it is to access an informal credit market. In other words, the informal credit constraint is positively correlated with wealth.
With 1% increase in per capita assets (expenditure), the probability of the access to the informal credit market increases by 4% (8.9%).
The effect of other control variables on informal credits is consistent with previous literature. Social network increases sig-
nicantly the access to informal credit, consistent with nding from Yuan and Xu (2013). The percentage of formal-credit-
constrained household signicantly impacts the household's access to informal credit. It may indicate that in areas where formal
credit markets are more developed, informal credit may not be as active. In other words, informal credit serves as a substitute for
formal credits. This nding is consistent with previous studies (e.g., Guirkinger, 2008; Yuan & Xu, 2013).
Experiencing a negative income shock positively affects the probability of informal borrowing. If the household suffers a negative
income shock, 28% of them use informal borrowings to cope with risks. This nding is consistent with Fafchamps and Gubert (2007),
Karlan (2007) and Karlan, Mobius, Rosenblat, and Szeidl (2009). Theoretically, a negative income shock may affect the informal
credits from two sides. On the one hand, if the negative income shock happens before borrowing, the household may borrow to
cope with risks (Eswaran & Kotwal, 1989; Karlan, 2007; Karlan et al., 2009). On the other hand, the households may not get loans
if potential lenders expect that the borrower may default, and the default risks may increase if the negative income shock happens
after borrowing. Our result conrms positive effect of a negative income shock. In this regard, we share the limitation of previous
studies that the timings of income shock and informal borrowing are simultaneously determined.
Household size positively affects the probability of informal borrowings. Larger households tend to have larger social network,
thereby increasing the probability of borrowing from the informal credit market. The effects of average age on informal credit are
inverted U-shaped. With more children (more elder people) in the household, making the average age lower (higher), the household
has more difculties in accessing the informal credit market.
The effect of average education is U-shaped, the highest and lowest educated household have higher probability of entering the
informal credit market, compared to the lower educated. Self-employed status has no effect on a household's access to informal credit.
It could be that asset is the result of accumulation from different income sources including entrepreneurship and this effect has been
captured in the poverty measures.
5.2. Endogeneity discussion
It has been found in previous literature that development of credit market may improve households' welfare, and reduce poverty
through consumption smoothing mechanism (Berhane & Gardebroek, 2011; Besley, 1995; Eswaran & Kotwal, 1989; Khandker, 2005).
In other words, households may improve their welfare and move out of poverty if they have access to credit markets, which leads to
reverse causality and therefore undermines our empirical model. To address this endogeneity issue, we use instrumental variable and
structural model approach (Cameron & Trivedi, 2010; Wooldridge, 2002) to re-estimate model (1) with ivprobit command in
STATA. We use risk attitude as an instrumental variable for wealth.
The key assumption for instrument validity is, rst, that risk attitude correlates with wealth. Fig. 3 draws the relationship between
household per capita assets and risk attitude. It has been found that risk attitude is related to households' wealth; the more wealth
they have, the higher risks they are willing to bear. We nd that the share of risk averse households is decreasing from the lowest
to the highest percentile in wealth. Besides, we also examine the correlation between risk attitude and the two measures, respectively.
Its correlation with per capita asset is 0.116, and 0.125 with expenditure per capita, both signicant at 1% level. Moreover, from
the rst-stage estimation,12 R2s are 0.342 (column (1) of Appendix 3) and 0.365 (column (2) of Appendix 3) respectively, both of
which are relatively high for a cross-sectional analysis. Using the Finlay and Magnusson's (2009) test, we then perform a weak IV
test using rivtest in STATA. We reject the null hypothesis of weak instrument of risk attitude for per capita asset at 10% signicant
level, but fail to reject it for per capita expenditure.
Second, the instrument variable does not directly affect the accessibility of informal credit, the correlation between risk attitude
and access to informal credit is 0.075. We use a Wald test of exogeneity to test the validity of the instrument. The p-values are
11
Using households as units have limitations. Poverty should be measured and identied at an individual level; using per capita measure at the household level may
underestimate poverty. Due to data availability, we can only identify poverty at the household level.
12
The rst stage results are reported in columns (1) & (2) of Appendix 2.
Table 2
Wealth effects on the probability of accessing to informal credit market.
Probit IVprobit
(1) (2) (3) (4)
Log (asset value per capita) 0.037 0.422

(0.019) (0.232)
Log (expenditures per capita) 0.085 0.560
(0.033) (0.345)
Self-employed 0.064 0.067 0.303 0.107
(0.086) (0.085) (0.238) (0.155)
Social network 0.024 0.024 0.020 0.020
(0.008) (0.008) (0.009) (0.008)
Negative income shock 0.286 0.288 0.258 0.288
(0.069) (0.069) (0.087) (0.071)
Village percentage of formal-credit-constrained 1.600 1.583 1.796 1.594
(0.486) (0.483) (0.386) (0.428)
Landholding 0.005 0.007 0.027 0.027
(0.022) (0.022) (0.032) (0.031)
Household size 0.034 0.043 0.080 0.120
(0.019) (0.019) (0.030) (0.055)
Percentage of labors 0.130 0.124 0.121 0.079
(0.092) (0.093) (0.094) (0.103)
Average age 0.027 0.029 0.003 0.028
(0.012) (0.012) (0.022) (0.012)
Average age square 0.047 0.049 0.016 0.042
(0.014) (0.014) (0.029) (0.016)
Share of adults' education at junior high 0.240 0.251 0.394 0.390
(0.081) (0.082) (0.107) (0.125)
Share of adults' education at or above high 0.001 0.042 0.303 0.439
(0.121) (0.124) (0.195) (0.296)
Village average per capita net income 0.004 0.002 0.005 0.010
(0.008) (0.007) (0.012) (0.013)
County xed effects Yes Yes Yes Yes
N 3120 3120 3120 3120
Pseudo R2 0.122 0.122
Wald exog. test 2 (Prob N 2) 1.96 (0.161) 1.67 (0.197)
Wald weak iv robust test 2 (Prob N 2) 2.82 (0.093) 2.17 (0.141)
Note: The data come from the 2011 China Household Finance Survey (CHFS). Please refer to Appendix 2 for variables denitions. Marginal effect and clustering standard
errors at county level are reported. First stage of ivprobit results are reported in columns (1) and (2) of Appendix 3, respectively.
Signicant at 10% level.
Risk attitude against wealth

65%
60%
55%
50%
45%
40%
35%
30%
25%
20%
10 20 30 40 50 60 70 80 90 100
Percentile of distribution of total assets per capita
Note: Risk attitude is defined as 1 if a household is not willing to take any risks and 0 otherwise.
Figure 3. Risk attitude against wealth. Note: The data come from the 2011 China Household Finance Survey (CHFS). Risk attitude is dened as 1 if a household is not will-
ing to take any risks and 0 otherwise.
Table 3
Households heterogeneity: Self-employed vs non-self-employed.
Self-employed Non-self-employed P-value
Asset value per capita (yuan) 178,803 59,445 0.001

Expenditures per capita (yuan) 13,980 7,779 0.001
Social network 6 7 0.049
Total social spending (yuan) 6683 3371 0.001
Access to informal credit dummy 0.47 0.45 0.383
Negative income shock 0.22 0.19 0.301
Risk attitude (1 = bearing no risks) 0.34 0.52 0.001
Observations 319 2801
Note: The data come from 2011 China Household Finance Survey (CHFS). Please refer to Appendix 2 for variables denitions.
Table 4
Subgroup estimation: Self-employed vs non-self-employed (ivprobit).
Self-employed Non-self-employed
(1) (2)
Log (Asset value per capita) 0.033 0.508

(0.860) (0.203)
Social network 0.059 0.017
(0.041) (0.010)
Negative income shock 0.650 0.214
(0.319) (0.100)
Village percentage of formal-credit-constrained 1.005 1.564
(2.822) (0.369)
Landholding 0.021 0.030
(0.327) (0.032)
Household size 0.137 0.079
(0.160) (0.027)
Percentage of labors 0.158 0.109
(0.628) (0.101)
Average age 0.096 0.004
(0.107) (0.023)
Average age square 0.136 0.005
(0.124) (0.030)
Share of adults' education at junior high 0.108 0.414
(0.832) (0.095)
Share of adults' education at or above high 0.169 0.364
(1.379) (0.167)
Village average per capita net income 0.028 0.007
(0.056) (0.012)
County xed effects Yes Yes
N 299 2801
Pseudo R2
Wald test 2 0.01 2.50
Prob N 2 0.945 0.114
Risk attitude is an instrument variable of households' total asset per capita (Log). The rst stage of estimations are reported in columns (3) and (4) of Appendix 3,
respectively. 319 households who are self-employed decreases to 299 households due to lack of variation in a single village, and 20 observations are dropped.
Note: The data come from the 2011 China Household Finance Survey (CHFS). Please refer to Appendix 2 for variables denitions. Marginal effect and clustering standard
errors at county level are reported.
0.161 (in column (3) of Table 2) and 0.197 (in column (4) of Table 2) and we cannot reject the null hypothesis of exogeneity of risk
attitude. Therefore, it indicates that risk attitude13 may be a potential candidate for instrumental variable.
Columns (3) & (4) of Table 2 report the ivprobit estimation using the per capita expenditure and asset, respectively. The results
conrm that the poor households are more likely to be constrained in the informal credit market. The larger estimated value for ,
the more different probit and ivprobit models are. It yields that is 0.52 for per capita asset, and 0.35 for per capita expenditure.
Accordingly, the coefcient of interest, the effect of wealth on access to informal credit is 0.04 in Column 1 of Table 2, and is 0.42 in
Column 3 of Table 2. The coefcients of other covariate remain unchanged in either signicant level or magnitude. The above test
13
Other questions about risk attitude include buckling up seat belts and obeying trafc lights. The two questions are not appropriate for our study since only 6% of
households in our sample have a car and roads in rural China rarely have trafc lights.
Table 5
Informal credit accessibility of poor: absolute denitions based on expenditures per capita.
$1.00 per day $1.50 per day Old poverty line in 2008/2009 New poverty line in 2010
(1196 yuan per annum) (2300 yuan per annum)
(1) (2) (3) (4)
Non-poor 0.056 0.059 0.149 0.078

(At or below poverty line as reference) (0.060) (0.055) (0.161) (0.060)
Self-employed 0.093 0.090 0.095 0.092
(0.083) (0.083) (0.082) (0.082)
Social network 0.024 0.024 0.024 0.024
(0.008) (0.008) (0.008) (0.008)
(0.070) (0.069) (0.070) (0.070)
(0.485) (0.486) (0.492) (0.485)
Landholding 0.003 0.004 0.003 0.004
(0.022) (0.022) (0.022) (0.022)
Household size 0.032 0.033 0.032 0.033
(0.020) (0.019) (0.019) (0.019)
(0.093) (0.093) (0.094) (0.093)
Average age 0.029 0.029 0.028 0.029
(0.012) (0.012) (0.012) (0.012)
(0.014) (0.014) (0.014) (0.014)
(0.082) (0.083) (0.083) (0.082)
(0.119) (0.122) (0.120) (0.120)
(0.008) (0.008) (0.008) (0.008)
N 3120 3120 3120 3120
Pseudo R2 0.121 0.121 0.121 0.121
Note: The data come from the 2011 China Household Finance Survey (CHFS). Please refer to Appendix 1 for denition of dependent variables and Appendix 2 for de-
nition of explanatory variables. Marginal effect and clustering standard errors at county level are reported.
shows that there is no signicant statistical relationship

between risk attitude and access to informal credit. Actually, we cannot provide the direct evidence to prove that there is no relation-
ship between risk attitude and access to informal credit in reality, which is the limitation of this paper.
5.3. Robustness check
In this section, we perform a few robustness checks.

Elston and Audretsch (2010) show that given the wealth level, more risk-averse entrepreneurs are more likely to start up business
using earnings from the second job instead of raising debt. In other words, the risk averse self-employed households may not enter the
credit market. Wealth plays an important role on the nancing decisions of entrepreneurs (Evans & Jovanovic, 1989; Kan & Tsai,
2006). Based on this logic, risk attitude may correlate with the informal credit accessibility through the decision on start up a business,
although whether the rural households are self-employed is controlled in our estimation to reduce the correlation of risk attitude and
nancing choice. We then test the mean difference of self-employed and non-self-employed households and report the results in
Table 3. We nd that share of risk averse of self-employed households is more risk averse than that of non-self-employed group. How-
ever, we nd no signicant difference of access to informal credits between the two subgroups. It shows that self-employment has a
much higher wealth (119,358 yuan higher in asset and 6201 yuan higher in consumption) and social spending (3312 yuan higher)
than the non-self-employed households, which justies a sub-sample estimation. In order to test whether different income sources
affect the access to informal credit or not, we re-estimate model (1), and report the results for self-employed and non-self-employed
in Table 4.14 Result shows that for the non-self-employed group, with an increase in wealth, its access to informal credit improves
while it has no signicant effect for the self-employed group. It may be that after household accumulated wealth reaches a level,
it is no longer constrained in the informal credits.
One concern might arise when using continuous variables to measure poverty. It implicitly assumes that with 1% increase in
poverty (1% decrease in wealth), it has the same effect on the dependent variable, i.e., access to informal credit. In other words, the
14
The credit market development improves the household start up a business, so we exclude the start up a business after 2010, make sure this reverse causality prob-
lem has little effect on our estimations.
Table 6
Informal credit accessibility of the poor: relative denitions based on per capita asset.
Within country Within county Within village
(1) (2) (3) (4)
1040th percentile 0.030

(Poorest 10% as Reference) (0.109)
(0.105)
(0.112)
(0.126)
2575th percentile 0.111 0.060 0.074
(Poorest 25% as Reference) (0.054) (0.071) (0.059)
75100th percentile 0.283 0.134 0.144
(0.096) (0.076) (0.084)
Self-employment 0.061 0.057 0.068 0.067
(0.082) (0.083) (0.084) (0.087)
Social network 0.025 0.024 0.025 0.024
(0.008) (0.008) (0.008) (0.008)
(0.069) (0.069) (0.069) (0.069)
(0.488) (0.489) (0.462) (0.492)
Landholding 0.004 0.004 0.004 0.004
(0.022) (0.022) (0.022) (0.022)
Household size 0.035 0.035 0.034 0.034
(0.018) (0.019) (0.019) (0.019)
(0.092) (0.092) (0.093) (0.092)
Average age 0.027 0.028 0.028 0.028
(0.012) (0.012) (0.012) (0.012)
(0.014) (0.014) (0.014) (0.014)
(0.081) (0.082) (0.080) (0.082)
(0.118) (0.120) (0.118) (0.121)
(0.008) (0.009) (0.008) (0.008)
N 3120 3120 3120 3120
Pseudo R2 0.122 0.123 0.122 0.122
Note: The data come from the 2011 China Household Finance Survey (CHFS). Please refer to Appendix 1 for denition of dependent variables and Appendix 2 for de-
nition of explanatory variables. Marginal effect and clustering standard errors at county level are reported.
effect of poverty is restricted to be the same regardless of their position in the wealth distribution, which might be unreasonable. Thus,
we turn to poverty lines specied by the State government or suggested by the World Bank as thresholds to dene absolute poverty as
two additional robustness checks.
Therefore, we rewrite our empirical model as Eq. (2) and divide households in different wealth groups using per capita asset and
expenditures as criteria, respectively.
X
m
k
ProbIFC i 1 0 1 SOC i k POOR X i V l f l i : 2
k2
The change in Eq. (2) is that we dene a sequence of categorical variables (m is the total numbers of categories, and k is the order),
named POORk. Household i is grouped into one of the k categories according to its position of asset value per capita in the distribution.
To avoid possible bias due to the specication of thresholds, we use both the rst 10 percentiles and 25 percentiles as references in
different settings. Other control variables are dened similarly to model (1), i is disturbance, 's, 's, , and are coefcients to be
estimated in the model.
International poverty line is US$1.00 or $1.50 per day of expenditure (Gustafsson & Li, 2004; World Bank, 2000) and national
poverty line in China, i.e., 1196 yuan per annum, and 2300 yuan per annum (Zhang, Xu, Zhou, Zhang, & Xie, 2013). Both poverty
lines are used to measure poverty in this study.15
15
We use the average exchange rate of CNY against USD in year 2010, and households are categorized as poor if their annual per capita expenditure is below the stan-
dards. For details, please see Appendix 1.
Table 7
Mechanism 1: social capital investment.
(1) (2) (3) (4)
Log (total social spending) Log (festival spending) Log (celebration spending) Log (other social spending)
Panel A. Relative poorest 10% within country as reference

1040th percentile 0.503 0.595 0.191 0.396
(0.216) (0.160) (0.173) (0.174)
4070th percentile 1.187 1.229 0.747 0.691
(0.241) (0.185) (0.232) (0.203)
7090th percentile 1.525 1.658 1.112 1.113
(0.247) (0.199) (0.216) (0.230)
90100th percentile 2.191 2.241 1.615 0.880
(0.296) (0.303) (0.255) (0.305)
N 3120 3120 3120 3120
Adj. R2 0.174 0.173 0.180 0.136
Panel B. Relative poorest 25% within county as reference

2575th percentile 0.730 0.694 0.558 0.378
(0.191) (0.164) (0.170) (0.120)
75100th percentile 1.439 1.412 1.127 0.573
(0.178) (0.169) (0.181) (0.191)
N 3120 3120 3120 3120
Adj. R2 0.171 0.168 0.178 0.132
Panel C. Relative poorest 25% within village as reference

2575th percentile 0.779 0.686 0.574 0.513
(0.177) (0.149) (0.169) (0.130)
75100th percentile 1.501 1.457 1.160 0.744
(0.205) (0.175) (0.203) (0.199)
N 3120 3120 3120 3120
Adj. R2 0.173 0.170 0.179 0.134
Note: The data come from the 2011 China Household Finance Survey (CHFS). Please refer to Appendix 1 for denition of the variables. Marginal effect and clustering stan-
dard errors at county level are reported. Other control variables are the same as in Table 4 but not reported here.
Results of Table 5 show that the poor have lower probability in entering the informal credit market, but insignicant using absolute
standards. It could be attributed to a few factors. First, neither international nor national poverty line takes into account possible
heterogeneity among household across regions. Second, only 4% of our sample is below the national poverty line, which is conducive
to its insignicance. Third, most importantly, using the standards implicitly assume that all households above or below the thresholds
are homogeneous among themselves, which may be violated empirically.
However, one major weakness of using absolute poverty lines is that they may not accurately correspond to rural households'
economic welfare; households who are above (or below) the threshold are regarded as homogeneous in terms of their effects on
informal credit access. For example, the lowest 25% percentile of per capita asset within village in Guangdong province,
e.g., 104,100 yuan, it is at 40%45% percentile in the national level. In other words, the poor in Guangdong, they will become the
middle class if they migrate to other places, such as Yuannan or Sichuan. Therefore, we employ relative poverty, dened as the
minimal level of welfare in local areas (Glauben et al., 2012; Jalan & Ravallion, 1999; Zhang & Wang, 2006). One additional advantage
of relative poverty is that it takes into account the imbalanced regional economic development in China (Chen & Ma, 2013). In addi-
tion, proponents of relative measures argue that they give additional information on whether a certain group of people is excluded
from economic growth, which is important to social equality. Thus, we use relative measures according to per capita asset at the
national, county and village levels complementary to international and national poverty lines, e.g., we calculate relative ratio of
household's per capita asset to average per capita asset of village (county), then group them in different welfare subgroups.
Specically, for relative poverty at the national level, we use the rst 10 percentiles as reference and dene four binary variables,
denoting their assets at the 10th to 40th percentile, 40th to 70th percentile, 70th to 90th percentile and above the 90th percentile. To
avoid possible bias due to the specication of thresholds, we also employ the rst 25 percentiles as reference and dene two dummy
variables for their position at the 25th to 75th percentile and above the 75th percentile. County- and village-level poverty is dened
similarly except that only the latter grouping method is used. Results are reported in Table 6.
At the national level, it shows that the richest 10% are more likely to access the informal credit market. Using the 25th percentile of
asset per capita as reference, households belonging to the richest 25% group at village or county levels have better access to informal
credit markets than their counterparts. The effects of other variables on the access to informal credit remain in the same signicance
and similar magnitude across all specications. In sum, the poorest of poor have lower probability to access the informal credit market,
and this result is robust, although the IV maybe weak.
Table 8
Household heterogeneity: whether experiencing a negative shock.
Experienced a negative shock Not experienced a negative shock P-value
Asset value per capita (yuan) 58,918 74,724 0.193

Expenditures per capita (yuan) 8267 8448 0.670
Social network 7 7 0.772
Total social spending (yuan) 3586 3740 0.640
Access to informal credit dummy 0.56 0.42 0.001***
Negative income shock
Samples 607 2513
Note: The data come from the 2011 China Household Finance Survey (CHFS). Please refer to Appendix 2 for denition of the variables.
signicant at 1% level.
Table 9
Mechanism 2: default risks (negative income shock as proxy).
Experienced a negative shock Not experienced a negative shock
Within country Within county Within village Within country Within county Within village
(1) (2) (3) (4) (5) (6) (7) (8)
1040th percentile 0.009 0.210

(Poorest 10% as reference) (0.119) (0.239)
(0.110) (0.273)
(0.124) (0.266)
(0.141) (0.334)
2575th percentile 0.066 0.016 0.007 0.265 0.441 0.343
(Poorest 25% as reference) (0.067) (0.077) (0.084) (0.132) (0.170) (0.156)
75100th percentile 0.295 0.062 0.083 0.058 0.367 0.265
(0.116) (0.103) (0.096) (0.364) (0.188) (0.167)
County xed effects Yes Yes Yes Yes Yes Yes Yes Yes
N 2513 2513 2513 2513 593 593 593 593
Pseudo R2 0.122 0.123 0.122 0.122 0.173 0.172 0.177 0.173
Note: The data come from the 2011 China Household Finance Survey (CHFS). Please refer to Appendix 2 for denition of the variables. Marginal effect and clustering stan-
dard errors at county level are reported. Other control variables are the same as in table 4.
5.4. Mechanism discussion
In this section, we investigate possible channels through which wealth exerts inuence on accessibility of informal credits. Previous
literature shows that the poor are excluded from the formal credit markets due to its high default risks; it is likely that for the same reason,
they are excluded from the informal credit market. Knowing that they are unable to get loans from banks, the poor may increase the in-
vestment on social capital as ex ante strategy (Karlan et al., 2009; Shoji et al., 2012), since the social network raises the probability of their
access to informal credits. The competing hypothesis states that the poor do not have extra money to invest, e.g., on education (Galor &
Zeira, 1993), agricultural production (Binswanger & Khandker, 1995; Khandker, 1998), and most importantly, social capital (Shoji et al.,
2012) beyond their basic needs (i.e., food for surviving, or cash holding). It follows that the poor may be excluded from social network
(Santos & Barrett, 2011), while their private borrowing relies heavily on their social network (Calum & Kong, 2010). Therefore, they
may be credit constrained due to limited social capital. To make it worse, the poor generally do not have pocket money to cope with
contingent risks (Ray, 1998), they are more likely to default; once recognized, they are credit constrained in rural informal market as well.
We use total social spending, including expenditures on festival, celebration and other social-related activities, to measure
investment of social capital.16 This measure has been used in previous literature (Chen & Zhang, 2012; Shoji et al., 2012). We use
the (log) social spending as the dependent variable and repeat regressions specied in Table 6, and report the results in Table 7.17
In Eq. (3), SOCEXP is the total spending on social network, including festival, celebration and other activities (i.e. housing,
education, medicine18). Other control variables are similarly dened to model (2), ei is disturbance, and 's, , , and are
coefcients to be estimated in the model.
16
The purpose of this is to test whether the poor spend less on social activities compared to their rich counterparts, but not the absolute amount of their social spending.
17
An alternative way to test the mechanism is to use Eq. (2) with interaction terms of social spending and poor variables. First, the social spending is endogenous if it uses these
variables instead of the number of siblings. Second, exogenous variable of social network does not change according to different wealth levels. Hence, we use the indirect method,
which is to treat the potential mechanism variable as dependent variables, as this method is well used in the previous literatures (e.g., Chen & Zhang, 2012; Shoji et al., 2012).
18
In rural China, the households like to celebrate and receive gift or cash from others, when they build a new house, their children's entry to the college or university, etc.
X
m
k
Log SOCEXP i 0 1 SOC k POOR X i V l f l ei : 3
k2
Panel A of Table 7 reports results using relative poverty at the national level, panel B at the county level, and panel C at the
village level. The three panels yield similar results, showing that the poorest 10%, or poorest 25% of households invest less on
social capital. It shows a clear and consistent pattern that as wealth increases, expenditures on social activities increase, and
the estimated coefcients are larger.
Households who have experienced a negative income shock may be different in their wealth and access to informal credit.
We report a mean difference test result for the two groups in Table 8. It shows that the two groups have a signicant difference
in their access to informal credit. As Ray (1998) argues, if the poor suffer from a negative income shock, they do not have pocket
money to repay, thus we use the negative income shock as a proxy for default risks. We then split the sample into two groups:
those who have suffered negative income shock and those who have not and re-estimate Eq. (2). The results are reported in
Table 9. Columns (1) to (4) report the results for households who have not experienced a negative shock, and columns (5) to
(8) for households who have experienced a negative shock. It yields no signicant and consistent pattern for the two subgroups.
Therefore, we cannot conrm the default risk mechanism.
6. Conclusion
Credit markets in China have played an important role in promoting rural development but the poor are often excluded
from formal credit markets (Shoji et al., 2012), and are not able to enjoy the benets they bring about. Farmers who are
constrained by formal credits may resort to informal credit markets and alleviate their nancial constraints. However, not
all people have equal access to informal credit markets suggesting that the poorest of the poor may still have credit con-
straints even with the help of informal credit markets. This paper provides direct evidence on how the poor have access to
informal credits in rural China.
We empirically test whether the poor are able to access the informal credit markets using a recent representative
China Household Finance Survey (CHFS) data. Our results conrm that informal credit constraints are affected by wealth, social
network, age and education. Moreover, we examine two possible channels through which wealth has an effect on informal credit
access, i.e., default risk and social capital mechanism. Consistent with the hypothesis that informal credit can have a negative effect
on economic development, we nd that the poor have no nancial means for investment in social capital, which largely prevents
them from borrowing in the informal sector. To make it worse, the poor are more likely to be excluded from social network if they
are constrained by formal credit.
It may have important implications for the poverty-reduction policy in developing countries whether rural households have equal
access to the informal credit markets. If the poor have difculties in entering the informal credit markets as well as the formal ones,
they are more likely trapped in poverty deeper and longer. The policy makers will need to step in and intervene with poverty-
reduction programs directed to those who have no access to credit markets.
Appendix 1. Indicators and denitions of poverty
Indicators Denitions
Continuous variables
Per capita income In log form
Per capita consumption In log form
Absolute poverty
International poverty line 1 Dened to 1 if per capita consumption is below $1 per day; 0 otherwise. Average exchange rate of $1 = 6.7695 yuan
in year 2010 is used.
International poverty line 2 Dened to 1 if per capita consumption is below $1.5 per day; 0 otherwise. Average exchange rate of $1 = 6.7695 yuan
in year 2010 is used.
National poverty line 1 Dened as 1 if per capita consumption is below 1196 yuan per annum (2008/2009 standard); 0 otherwise
National poverty line 2 Dened as 1 if per capita consumption is below 2300 yuan per annum (2010 standard); 0 otherwise
Relative poverty
National poverty measure 1 The 10th percentile as reference; four binary variables dened as 1 denoting their asset distribution in the 10th40th,
40th70th, 70th90th percentile and the above 90th percentiles, respectively; 0 otherwise
National poverty measure 2 The 25th percentile as reference; two binary variables dened as 1 if their asset distribution in the nation is in the
25th75th percentile or above the 75th percentile respectively; 0 otherwise
County-level poverty The 25th percentile as reference; two binary variables dened as 1 if their asset distribution in the county is in the
Village-level poverty The 25th percentile as reference; two binary variables dened as 1 if their asset distribution in the village is in the
Appendix 2. Variables denition
Variable Denition
Access to informal credit dummy Dened as 1 if borrowing from informal credit market, and 0 otherwise
Total social spending (yuan) Total spending transferred to others
Festival social spending (yuan) Total spending transferred to others due to Chinese Spring Festival, etc.
Celebration social spending (yuan) Total spending transferred to others due to marriage, funeral, etc.
Other social spending (yuan) Total spending transferred to others due to housing, medicine, education, etc.
Expenditures per capita (yuan) Total expenditures/household size. Total expenditures include: food at home and food away from home,
clothing, housing, utilities (water, electricity and heating), education (books, newspapers and internet),
travel and transportation (fuel), and maintenance
Asset value per capita (yuan) Total asset current value/household size. Total assets include: xed productive assets (agricultural and
commercial), grain, cash and deposits, nancial assets (stock, bonds and funds), car, housing, and
durable
goods; all of these are priced at the current value.
Poor Dened as 1 if the households' expenditures per capita equal or lower than international or national
poverty line, and 0 otherwise
Non-poor Dened as 1 if the households' expenditures per capita above international or national poverty line,
and 0 otherwise
Risk attitude (1 = bearing no risks) Dened as 1 if households cannot take any risks, and 0 otherwise
Social network Total number of adults' siblings (person)
Negative income shock Dened as 1 if households suffered negative income shock, and 0 otherwise
Self-employed Dened as 1 if household has business before 2010, and 0 otherwise
Landholding (mu) Total landholding of households
Household size (person) Total members of households
Percentage of labors (%) Total labors (1660)/household size
Average age (square) Average age (square) of households
Share of adults' education at or below primary (%) Education at or below primary of adults (aged above 16)/household size
Share of adults' education at junior high (%) Education at junior high of adults (aged above 16)/household size
Share of adults' education at or above high (%) Education at or above primary of adults (aged above 16)/household size
Village percentage of formal-credit-constrained Share of formal-credit-constrained households/village size
(%)
Village average per capita net income (yuan) Average per capita net income in a village in year 2010
Appendix 3. Risk attitude vs wealth
Self-employed Non-self-employed
(1) (2) (3) (4)
Log (total assets Log (total expenditure Log (total assets Log (total assets
per capita) per capita) per capita) per capita)
Instrument
Risk attitude 0.135** 0.112*** 0.261 0.124*
(0.063) (0.031) (0.175) (0.065)
Self-employed 0.897*** 0.339***
(0.076) (0.053)
Social network 0.003 0.005 0.023 0.003
(0.010) (0.004) (0.026) (0.011)
(0.067) (0.037) (0.218) (0.071)
(0.685) (0.317) (2.129) (0.768)
Landholding 0.058 0.044** 0.263** 0.051
(0.036) (0.021) (0.115) (0.034)
Household size 0.130*** 0.164*** 0.158*** 0.126***
(0.020) (0.012) (0.048) (0.022)
(0.129) (0.076) (0.420) (0.131)
Average age 0.053*** 0.000 0.086 0.052***
(0.014) (0.006) (0.066) (0.015)
Average age square 0.064*** 0.009 0.093 0.064***
(0.017) (0.007) (0.070) (0.017)
Share of adults' education at junior high 0.472*** 0.310*** 0.978*** 0.457***
(0.103) (0.049) (0.351) (0.109)
Share of adults' education above high 0.755*** 0.811*** 1.499*** 0.684***
(0.118) (0.083) (0.348) (0.131)
(0.020) (0.019) (0.038) (0.021)
N 3120 3120 319 2801
Adj. R2 0.342 0.365 0.497 0.298
References
Allen, F., Qian, J., & Qian, M. (2005). Law, finance and economic growth in China. Journal of Financial Economics, 77(1), 57116.
Berhane, G., & Gardebroek, C. (2011). Does microfinance reduce rural poverty? Evidence based on household panel data from Northern Ethiopia. American Journal of
Agriculture Economics, 93(1), 4355.
Besley, T. (1995). Nonmarket institutions for credit and risk sharing in low-income countries. Journal of Economic Perspectives, 9(3), 115127.
Binswanger, H.P., & Khandker, S.R. (1995). The impact of formal finance on the rural economy of India. Journal of Development Study, 32(2), 234262.
Brandt, L., & Hosios, J. (2010). Interest-free loans between villagers. Economic Development and Cultural Change, 58(2), 345372.
Calum, G.T., & Kong, R. (2010). Informal lending amongst friends and relatives: Can microcredit compete in rural China? China Economic Review, 21(4), 544556.
Cameron, A.C., & Trivedi, P.K. (2010). Microeconometrics using Stata. Texas: Published by Stata Press.
Carter, M.R., & Barrett, C.B. (2006). The economics of poverty traps and persistent poverty: An asset-based approach. Journal of Development Studies, 42(2), 178199.
Carter, M.R., & May, J. (2001). One kind of freedom: Poverty dynamics in post-apartheid South Africa. World Development, 29(12), 19872006.
Chen, Y., & Ma, Y. (2013). The development of rural finance in China. published by Enrich Professional Publishing (S) Private Limited, 15.
Chen, X., & Zhang, X. (2012). Costly posturing: Relative status, ceremonies and early child development in China. Working Paper, No. 2012/70, UNU-WIDER.
Dufhues, T., Buchenrieder, G., Quoc, H.D., & Munkung, N. (2011). Social capital and loan repayment performance in Southeast Asia. The Journal of Socio-Economics, 40,
679691.
Elston, J.A., & Audretsch, D.B. (2010). Risk attitudes, wealth and sources of entrepreneurial start-up capital. Journal of Economic Behavior & Organization, 76(1), 8289.
Eswaran, M., & Kotwal, A. (1989). Credit as insurance in agrarian economies. Journal of Development Economics, 31(1), 3753.
Evans, D.S., & Jovanovic, B. (1989). An estimated model of entrepreneurial choice under liquidity constraints. Journal of Political Economy, 97, 808827.
Fafchamps, M., & Gubert, F. (2007). The formation of risk sharing networks. Journal of Development Economics, 83(2), 326350.
Finlay, F., & Magnusson, L.M. (2009). Implementing weak instrument robust tests for a general class of instrumental variables models. The Stata Journal, 9(3), 126.
Galor, O., & Zeira, J. (1993). Income distribution and macroeconomics. The Review of Economic Studies, 60(1), 3552.
Glauben, T., Herzfeld, T., & Wang, X. (2012). Persistent poverty in rural China: Where, why, and how to escape? World Development, 40(4), 784795.
Glewwe, P., & Van Der Gaag, J. (1990). Identifying the poor in developing countries: Do different definitions matter? World Development, 18(6), 803814.
Green, M., & Hulme, D. (2005). From correlates and characteristics to causes: Thinking about poverty from a chronic poverty perspective. World Development, 33(6),
867879.
Guirkinger, C. (2008). Understanding the coexistence of formal and informal credit markets in Piura, Peru. World Development, 36(8), 14361452.
Gustafsson, B., & Li, S. (2004). Expenditures on education and health care and poverty in rural China. China Economic Review, 15(3), 292301.
Jalan, J., & Ravallion, M. (1999). Are the poor less well insured? Evidence on vulnerability to income risk in rural China. Journal of Development Economics, 58(1), 6181.
Jia, X., Xiang, C., & Huang, J. (2013). Microfinance, self-employment, and entrepreneurs in less developed areas of rural China. China Economic Review, 27, 94103.
Kan, K.K., & Tsai, W.D. (2006). Entrepreneurship and risk aversion. Small Business Economics, 26, 465474.
Karlan, D. (2007). Social connections and group banking. The Economic Journal, 117(517), F52F84.
Karlan, D., Mobius, M., Rosenblat, T., & Szeidl, A. (2009). Trust and social collateral. The Quarterly Journal of Economics, 112(4), 12511288.
Khandker, S.R. (1998). Fighting poverty with microcredit: Experience in Bangladesh. New York: Oxford University Press.
Khandker, S.R. (2005). Microfinance and poverty: Evidence using panel data from Bangladesh. The World Bank Economic Review, 19(2), 263286.
Lee, J.J., & Sawada, Y. (2010). Precautionary saving under liquidity constraints: Evidence from rural Pakistan. Journal of Development Economics, 91, 7786.
Li, R., & Li, M. (2004). Studies on the borrowing behaviour of rural households and welfare effects. Economic Research Journal (in Chinese), 12, 96104.
Ma, G., & Yang, E. (2011). Social networks, informal finance and entrepreneurship. Economic Research Journal (in Chinese), 3, 8394.
Morduch, J. (1990). Risk, production and saving: Theory and evidence from Indian households. Mimeo, Harvard University.
Pender, J.L. (1996). Discount rates and credit markets: Theory and evidence from rural India. Journal of Development Economics, 50(2), 257296.
Pitt, M.M., & Khandker, S.R. (1998). The impact of group-based credit programs on poor households in Bangladesh: Does the gender of participants matter? Journal of
Political Economy, 106(5), 958996.
Ray, D. (1998). Development economics. published by Princeton University Press.
Santos, P., & Barrett, C.B. (2011). Persistent poverty and informal credit. Journal of Development Economics, 96(2), 337347.
Shoji, M., Aoyagi, K., Kasahara, R.J., Sawada, Y., & Ueyama, M. (2012). Social capital formation and credit access: Evidence from Sri Lanka. World Development, 40(12),
25222536.
Wang, F., & Zuo, X. (1999). Inside China's cities: Institutional barriers and opportunities for urban migrants. American Economic Review, 89(2), 276280.
Wooldridge, M.J. (2002). Econometric analysis of cross-sectional and panel data. Cambridge, MA: MIT press.
World Bank (2000). Attaching poverty. World Development Report 2000/2001. (Washington, DC).
You, J. (2014). Risk, under-investment in agricultural assets and dynamic asset poverty in rural China. China Economic Review, 29, 2745.
Yuan, Y., & Xu, L. (2013). Determinants of private informal interest rate: Evidence from rural households in China. Journal of Chinese Economic and Business Studies,
11(3), 179196.
Zhang, Y., & Wang, G. (2006). The impact of growth and inequality on rural poverty in China. Journal of Comparative Economics, 34(4), 694712.
Zhang, C., Xu, Q., Zhou, X., Zhang, X., & Xie, Y. (2013). An evaluation of poverty prevalence in China: New evidence from four recent surveys. IFPRI Discussion Paper 01293.
Zhao, Y. (1999). Leaving the countryside: Rural-to-urban migration decisions in China. American Economic Review, 89(2), 281286.

China Economic Review: Yan YUAN, Lihe XU

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

China Economic Review: Yan YUAN, Lihe XU

Transféré par

Droits d'auteur :

Formats disponibles

CHIECO-00811; No of Pages 15

China Economic Review xxx (2015) xxxxxx

Contents lists available at ScienceDirect

China Economic Review

Are poor able to access the informal credit market?

3. Data description and summary statistics

Percentile of wealth distribution all over the countryside of China

Percentile of distribution of asset value per capita

total assets total expenditure total net income

The baseline model is specied as follows:

ProbIFC i 1 0 1 SOC i POVERTY i X i V l f l i 1

Variables Obs Mean Std.

Panel A: Dependent variables

Panel B: Independent variables

Accessibility of formal and informal credit markets against wealth

5.1. Baseline results

5.2. Endogeneity discussion

(1) (2) (3) (4)

Log (asset value per capita) 0.037 0.422

Risk attitude against wealth

Self-employed Non-self-employed P-value

Asset value per capita (yuan) 178,803 59,445 0.001

Log (Asset value per capita) 0.033 0.508

(1) (2) (3) (4)

Non-poor 0.056 0.059 0.149 0.078

shows that there is no signicant statistical relationship

5.3. Robustness check

In this section, we perform a few robustness checks.

Within country Within county Within village

(1) (2) (3) (4)

1040th percentile 0.030

(1) (2) (3) (4)

Panel A. Relative poorest 10% within country as reference

Panel B. Relative poorest 25% within county as reference

Panel C. Relative poorest 25% within village as reference

Experienced a negative shock Not experienced a negative shock P-value

Asset value per capita (yuan) 58,918 74,724 0.193

Experienced a negative shock Not experienced a negative shock

(1) (2) (3) (4) (5) (6) (7) (8)

1040th percentile 0.009 0.210

5.4. Mechanism discussion

Appendix 1. Indicators and denitions of poverty

Appendix 2. Variables denition

Appendix 3. Risk attitude vs wealth

(1) (2) (3) (4)

Vous aimerez peut-être aussi