Study On Credit Behavior Of Rural Households And It’s Impact On Income

Rural households who have credit demand could further optimize the existing family resource allocation efficiency, if they are able to access to necessary external funding support. Then they may capture the grasp investment opportunities of production and operation and improve income level in the short term. Of course, they could also improve family life consumption level and repay the money through future efforts, which is the way to achieve maximum family utility in the long term. But in reality, due to the prevalence of credit constraints in rural areas (Stiglitz et al.,1981), rural households who have credit demand are facing bad rural financial market environment. And this has become one of the key factors blocking rural households’ income growth. According to Du Xiaoshan (2010) investigation results, there are only27%rural households who can get loan from formal channels. There are still about40%rural households who have credit demand can not get loan from formal channels. Unmet credit demand gap of rural households accounted for56.72%of total loan demand (Cheng Yu,2010). Therefore, it’s urgent to strengthen rural financial support. The reduction of threshold access to rural formal financial market and improvement of financing opportunities is very important for rural households who have credit demand.From the perspective of national policy, the No.1file released by the central government of China had pay close attention to rural finance since2004. The Third Plenary Session of the Seventeenth Central Committee of CPC also emphasized the establishment of modern rural financial system, which means the importance of rural finance. At the same time, the existing rural financial system is still difficult to meet rural financial demand which is necessary to deepen reform and develop. It’s very necessary to pay special attention to rural households when discussing agriculture and rural economy problems. As micro foundation of society and economy in China’s rural area, the economic behavior characteristics of rural households and its’ relationship with reform and development of rural finance is always one of the core contents about rural finance research. The common feature of all previous rural financial reforms is following reform path from top to bottom and having too much emphasis on financial deepening itself. Due to little consideration of demand subject, it is very hard to achieve the policy targets. The reform of rural finance must emphasize the rural households who have credit demand, which should be guided by high efficiency, quick service and low cost. Financial support must be supplied to those who have credit demand and has the ability to pay. Only in this way could more effectively promote rural financial reform and rural financial deepening and realize the preset targets rural financial institutions.In recent years, credit behavior of rural households has been widely discussed by domestic and foreign researchers. As a result, comparatively rich research results have been achieved. The characteristics of existing literatures are as follow. First, many aspects of credit behavior of rural households have been studied and a lot of common sense has been achieved, which is important basis of the future study. Second, study methods are relatively concentrated. The literature using descriptive analysis and empirical tests is quite much and the literature through theoretical analysis is relatively less. Furthermore, little literature has used theoretical analysis and empirical tests in one paper, which is lack of economic analysis of inner logic for credit behavior of rural households. At the same time, policy implication is to be excavated. Third, the depth should be enlarged, which is embodied in welfare effect analysis of credit behavior of rural households. For example, much literature simply does empirical analysis to test the effect of credit behavior on rural households’ income. However, quite little literature has discussed the operating mechanism.Based on the above analysis, distinguishing those who have no credit demand from those who have credit demand strictly is the primary core problem when studying credit behavior of rural households. This thesis only focuses on those who have credit demand. And study of credit channel, credit usage and impact of credit behavior on income is the most important and meaningful. On the basis of previous literature, this thesis intends to focus on and solve the following three problems through the combination of theoretical analysis and empirical test. First, due to the prevalence of credit constraints in rural area, credit behavior is passive result. Then, how to give reasonable economic explanation of the preference for formal channel and informal channel? How to explore the inner logic of phenomenon formation and do some related empirical tests? Besides, in order to improve rural households’preference for formal channel, how to design targeted rural public policy and financial policy? Second, as rational rural household, why does he prefer to borrow money for living expenses? The related problem is in what circumstances will rural household choose productive credit or living credit? In particular, in addition to the consumption function of dealing with temporary or necessary expenditure, how to give corresponding explanation for the living credit choice through economics theory? This will help to more deeply and systematically inspect rational economic person behavior motivation of living credit choice of rural household. Third, under today’s realistic background, the differences of employment structure, scale of production, mode of operation, planting structure between rural households are becoming more and more apparent. In order to improve income, how should we analyze the influence mechanism of credit behavior on rural households’income? In other words, what are the mechanism and path? Are there any differences between agricultural income and nonagri cultural income? And what are the corresponding policy implications?The overall goal of this paper is to focus on rural households who have credit demand. On the basis of rural financial theory, rural household economic theory and transaction cost theory, this thesis will explain credit channel preference and credit usage choice respectively. Then, influence mechanism of credit behavior on rural households’income will be discussed deeply. Finally, econometric models will be established to test the theoretical analysis using field survey and statistical data. And the main research contents and conclusions are as follow.Part1:credit behavior characteristic analysis of rural households with credit demandThis part will analyze the credit constraints condition when rural households apply formal credit and the reasons of why not applying. The key work is to describe the channels, usage, scale, and interest rates of credit and summarize the basic characteristics. Finally, some preliminary analysis and interpretation will be given. According to the Results, informal channels are still the main choices of rural households in general. However, the role of formal channels is growing in some developed regions and rural households with better economic conditions. Due to the restriction of external economic environment and ability of rural households themselves, the majority of rural households are lack of necessary investment opportunities. As a result, the credit usage is mainly living expenditure. At the same time, the importance of productive credit is tending to growing. At last, Interest-free is still the main form of rural household credit. And interest-bearing credit is become more and more frequent. As the deepening of marketing process, rural households’preferences are changing from relationship type to contract type slowly.Part2:theoretical analysis and empirical test of rural households’preference for credit channel Based on the premise assumes of credit constraints, theoretical model about preference for credit channel and transaction cost is established. The relative level of formal credit channel and informal credit channel will decide rural households’ preference. Then, transaction cost is quantified by rural households’social capital and rural financial supply service for empirical test. The research results show that social capital can play a signal screening effect helping to reduce the degree of information asymmetry between rural households and credit supplier. And this kind of function is very important for formal credit channel. The role of different personal social capital and community social capital has significant differences, and the role of personal social capital is less than community social capital. The increasing of rural financial service supply will reduce transaction cost and promote the more convenient access to formal credit channel, which includes strengthening promotion of rural financial products and services, growth of credit service staff, improvement of effective cover rate in rural area, enlargement of rural households’ total credit scale.Part3:theoretical analysis and empirical test of rural households’credit usage choiceWith the introduction of rural households’ family utility concept, an intertemporal model of credit usage choice and family utility function is constructed. Then it could be proved that both productive and living credit usage can increase the level of family utility. Finally, an econometric model will be used to identify the main factors deciding rural households’ credit usage choice. The results show that rural households with relatively larger production expenditure will tend to choose production credit usage. The effect of daily expenditure is not obvious. Rural households will have to deal with unfixed sum of living expenses through credit. Rural households tend to need more living credit capital, which have more intercourse expenditure, or having children, or having the aged. Besides, the demand of living credit capital is much larger than productive credit capital in both developed and developing rural area.Part4:theoretical analysis and empirical test of impact of rural households’ credit behavior on incomeOn the basis of Mackinnon model, an intertemporal general equilibrium model is established to analyze mechanism of action and degree of productive and living credit on rural households’ income. According to new classic economic theory and rural households’ economic theory, this part will explain influence mechanism of rural households’ credit behavior on income following the analytical path of technology boundary, technology portfolio combination and factor optimization. After considering individual and family characteristics and regional factors, this part has analyzed the impact of rural households’ credit behavior on income. The research results show that credit capital has important effect on family income, agricultural income and nonagricultural income. And the role of credit capital on nonagricultural income is a little more important than agricultural income. Credit channels are of importance to family income and agricultural income, which the effect of formal credit channel is much larger than informal credit channel. Despite different impact mechanism, both productive and living credit usage could improve income, which the former is more important in the short term. Credit interest rate has some negative effects on family income, agricultural and nonagrincultural income, but the effects are not obvious.