Please wait a minute...
Journal of Integrative Agriculture  2021, Vol. 20 Issue (4): 927-942    DOI: 10.1016/S2095-3119(20)63484-0
Section 2: Poverty alleviation through industrial development Advanced Online Publication | Current Issue | Archive | Adv Search |
Impacts of formal credit on rural household income: Evidence from deprived areas in western China
CHEN Si1*, LUO Er-ga2*, Lita ALITA3, HAN Xiao4, NIE Feng-ying5
1 College of Mathematics and Informatics, South China Agricultural University, Guangzhou 510642, P.R.China
2 Department of Agricultural Economics and Management, School of Public Affairs, China Academy for Rural Development (CARD), Zhejiang University, Hangzhou 310000, P.R.China
3 Environmental Policy Group, Wageningen University, Hollandseweg 16706, KN Wageningen
4 China Agricultural Science and Technology Press, Chinese Academy of Agricultural Sciences, Beijing 100081, P.R.China
5 Agricultural Information Institute, Chinese Academy of Agricultural Sciences, Beijing 100081, P.R.China
Download:  PDF in ScienceDirect  
Export:  BibTeX | EndNote (RIS)      


Abstract  Financial support is a crucial part of China’s poverty alleviation effort.  Thus, it is vital to understand how formal credit impacts income growth in rural households.  In 2012, 2015, and 2018, a survey was conducted to obtain a panel dataset of 592 rural households from 6 poverty-stricken counties in western China, including counties in Guizhou, Yunnan, and Shaanxi provinces.  We use the data to examine the effect of formal credit on rural household income and the mechanism that underlies this effect.  We find that formal credit can significantly increase rural households’ income in deprived areas in western China.  Furthermore, formal credit promotes the reallocation of household labor from the agricultural sector to the non-agricultural sector and changes rural households’ decisions about investment-consumption behavior.  These are the drivers of changes in the amount and structure of household income.  Further analyses show that formal credit may widen income inequality among rural households in western China’s deprived areas.  The individual characteristics of rural households, such as different levels of material capital, human capital, and social capital, bring about differences in the effects of formal credit on income growth.  This study emphasizes that the implementation of formal credit is an essential strategy for poverty alleviation in underdeveloped areas, but policymakers should not excessively interfere with the financial market.
Keywords:  formal credit        rural household income        rural finance        poverty-stricken areas in western China  
Received: 01 June 2020   Online: 11 November 2020   Accepted: 28 March 2021
Fund: The authors acknowledge the financial supports from the National Natural Science Foundation of China (71661147001), the National Social Science Fund of China (16ZDA021), and the Guangzhou Social Science Fund, China (2018GZYB45).
Corresponding Authors:  Correspondence NIE Feng-ying, Tel/Fax: +86-10-82109901, E-mail:    
About author:  CHEN Si, E-mail:; * These authors contributed equally to this study.

Cite this article: 

CHEN Si, LUO Er-ga, Lita ALITA, HAN Xiao, NIE Feng-ying. 2021. Impacts of formal credit on rural household income: Evidence from deprived areas in western China. Journal of Integrative Agriculture, 20(4): 927-942.

Alatas V, Banerjee A, Hanna R, Olken B A, Purnamasari R, Wai-Poi M. 2013. Ordeal mechanisms in targeting: Theory and evidence from a field experiment in Indonesia. No. W19127. National Bureau of Economic Research. [2020-8-11].
Arestis P, Caner A. 2004. A financial liberalization and poverty: Channels of influence. Levy Economics Institute Working Paper, No. 411. [2020-8-8].
Bai C, Li H, Wu B. 2012. Health insurance and consumption: Evidence from China’s new cooperative medical scheme. Economic Research Journal, 2, 41–53. (in Chinese)
Baron R M, Kenny D A. 1986. The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51, 1173.
Barham B L, Boucher S, Carter M R. 1996. Credit constraints, credit unions and small-scale producers in Guatemala. World  Development, 24, 793–806.
Bauer S. 2016. Does credit access affect household income homogeneously across different groups of credit recipients? Evidence from rural Vietnam. Journal of Rural Studies, 47, 186–203.
Beath A, Christia F, Enikolopov R. 2011. Can development programs counter insurgencies?: Evidence from a field experiment in Afghanistan. Policy Research Working Paper, No. 107. pp. 540–557.
Benti B B. 2019. How effective is microfinance on poverty reduction? Empirical evidence on ACSI (Ethiopia). Scientia Moralitas Research Institute, Belgium. pp. 303–310. [2019-6-23].
Bourdieu P. 1986. The forms of capital. In: Richardson J G, ed., Handbook of Theory and Research for the Sociology of Education. Greewood Press, New York. pp. 248–253.
Cao L, Luo J C. 2019. Social capital, financial literacy and farmers’ entrepreneurial financing behavior. Journal of Zhongnan University of Economics and Law, 3, 3–13. (in Chinese)
Chen F, Zhai W J. 2015. Land transfer incentive and welfare effect research from perspective of farmers’ behavior. Economic Research Journal, 10, 163–177. (in Chinese)
Cheng M W, Jin Y H, Gai Q E, Shi J H. 2014. Focusing on education or health improvement for anti-poverty in rural China: Evidence from national household panel data. Economic Research Journal, 11, 130–144. (in Chinese)
Cheng M W, Shi J H, Jin Y H, Gai Q E. 2015. The income gap of farmers and its root: Model and semonstration. Management World, 7, 17–28. (in Chinese)
Chu B J, Lu Y J, Zhang L Y. 2009. Anslysis on the welfare effect of farmers’ loan under credit rationing. Chinese Rural Economy, 6, 51–61. (in Chinese)
Cragg J, Donald S. 1993. Testing identifiability and specification in instrumental variable models. Econometric Theory, 9, 222–240.
Demirgüç-Kunt A, Levine R. 2009. Finance and inequality: Theory and evidence. Annual Review of Financial Economics, 1, 287–318.
Du X Z, Wang L H, Bai B P. 2009. Seasonal characteristic of the demand for farm labor in China. Journal of China Agricultural University, 14, 103–108. (in Chinese)
Galor O, Moav O. 2004. From physical to human capital accumulation: Inequality and the process of development. The Review of Economic Studies, 71, 1001–1026.
Galor O, Zeira J. 1993. Income distribution and macroeconomics. The Review of Economic Studies, 60, 35–52.
Gao M Y, Y Y. 2006. Which is the main reason for income inequality in rural China: Physical assets or human capital. Economic Research Journal, 12, 71–80. (in Chinese)
Greenwood J, Jovanovic B. 1990. Financial development, growth, and the distribution of income. Journal of political Economy, 98, 1076–1107.
De Gregorio J. 1996. Borrowing constraints, human capital accumulation, and growth. Journal of Monetary Economics, 37, 49–71.
Gustafsson B, Shi L. 2002. Income inequality within and across counties in rural China 1988 and 1995. Journal of Development Economics, 69, 179–204.
Hazari B, Mohan V. 2015. Social exclusion, capital accumulation and inequality. International Review of Economics & Finance, 39, 371–375.
Heckman J J, Navarro-Lazano S. 2004. Using matching, instrumental variables, and control functions to estimate economic choice models. The Review of Economics and Statistics, 86, 30–57.
Jiang Z N, Xie Z Z. 2016. Comparative analysis and enlightenment of rural household loan transaction costs - Based on the perspective of formal finance and informal finance. Rural Economy, 2, 83–88. (in Chinese)
Khandker S R, Cartwright J. 2003. Does micro-credit empower women: Evidence from Bangladesh. Social Science Electronic Publishing, 24, 158–169.
Khanh H L P.  2011.  The role of social capital to access rural credit: A case study at Dinh Cu and Van Quat Dong village in coastal area of Thua Thien Hue Province. MSc thesis,  University of Southampton, UK.
Kraay A, McKenzie D. 2014. Do poverty traps exist? Assessing the evidence. Journal of Economic Perspectives, 28,  127–148.
Li L. 2018. Financial inclusion and poverty: The role of relative income. China Economic Review, 52, 165–191.
Mincer J A. 1974. Schooling, Experience, and Earnings (Human Behavior and Social Institutions). National Bureau of Economic Research, New York. [2020-6-11].
Narayan D , Pritchett L. 1997. Cents and sociability: Household income and social capital in rural Tanzania. Economic Development and Cultural Change, 47, 871–897.
Nurkse R. 1953. Problems of capital formation in underdeveloped countries. International Journal of Economics & Management, 6, 413–420.
Qi L S. 2011. A study on the anti-poverty, income increasing and re-distributional effects of new cooperative medical system. The Journal of Quantitative Technical Economics, 8, 35–52. (in Chinese)
Rajan R, Zingales L. 2003. The great reversals: The politics of financial development in the 20th century. Journal of Financial Economics, 69, 5–50.
Ren Y, Castro Campos B, Loy J P, Brosig S. 2019. Low-income and overweight in China: Evidence from a life-course utility model. Journal of Integrative Agriculture, 18, 1753–1767.
Schultz T W. 1966. Transforming traditional agriculture: Reply. Journal of Farm Economics, 48, 1015–1018.
Stock J H, Yogo M. 2005. Testing for weak instruments in Linear IV Regression. NBER Working Paper, No. t0284. [2019-10-1].
Vogel H L. 2009. Financial Market Bubbles and Crashes. Cambridge University Press, UK. pp. 15–23. 
Wang D H, Wen T, Wang D X. 2014. County rural financial repressions and internal inequality of farmers’ income. Economic Science, 2, 44–54. (in Chinese)
Wang H J, Wen T, Han J L. 2019. Can the government led agricultural loan resource injection in poverty-stricken areas reduce poverty effectively? Based on the investigation of micro farmers in contiguous and extremely poor areas. Economic Science, 1, 108–119. (in Chinese)
Wang Y, Wang S G. 2016. Poverty decision and income growth of farmers in special poverty-stricken areas. Guizhou Social Sciences, 5, 145–155. (in Chinese)
Wen T, Wang Y. 2005. The economic effect of government led agricultural credit and financial support model: Based on the experience of China from 1952–2002. Chinese Rural Economy, 10, 20–29. (in Chinese)
Wen T, Zhu J, Wang X H. 2016. Elite capture of rural credit market in China: Stratified comparison between poor and non-poor counties. Economic Research Journal, 2, 111–125. (in Chinese)
Wen Z L, Ye B J. 2014. Intermediary effect analysis: Development of methods and models. Advances in Psychological Science, 5, 731–745. (in Chinese)
World Bank. 2001. World Development Report. 2000/2001: Attacking Poverty. Oxford University Press, New York.
Wu L J, Xu Z Y. 2016. Mechanism and path of influence of agriculture loans on rural households’ income: Evidence based on survey of 2126 households. Journal of Northwest A&F University (Social Science Edition), 6, 94–104. (in Chinese)
Yan X, Niu R. 2017.  The influence of farmers’ borrowing or lending money on income growing: Sample of 1771 farmers. Reform, 10, 105–113. (in Chinese)
Zhang Y, Xu Q, Wu J J. 2012. A successful anti-poverty war: Experience from China. Economic Research Journal, 12,  76–87. (in Chinese)
No related articles found!
No Suggested Reading articles found!