| Rural Finance and Poverty: Empirical Study Based on Fixed Effects Vector Decomposition ModelPoverty issues has been sought to overcome by mankind. Since 1978, China has made tremendous achievements in poverty reduction. But as a result of urban-rural dual structure, unfair distribution of income in the socio-economic development process, income growth is slow. So, how to increase the poor's income?Clearly, depending on government metastatic spending and subsidies are not good ideas in a long term, only by themselves, they could be out of poverty.How the poor develop their economy? Start-up capital has apparently become a bottleneck restricting in their development. To overcome this bottleneck, the rural financial development is the key. This article is based on the theory of relationship between financial development and poverty alleviation, carry on empirical research, to analyze rural financial development is conducive for poverty reduction or not.In this paper we attempt to distinguish the direct effect of financial development on poverty reduction from its indirect effect through economic growth. Using an efficient estimator called fixed effect vector decomposition(FEVD) we employ a set of panel data from 23 provinces for the period 2000-2008.Our results indicate that on average financial development is conductive for poverty reduction and the effect of the instability is not apparently. The major policy recommendations suggested by the paper indicate that financial sector reforms should be directed at easing credit restrictions while improving the agricultural insurance syste and speeding up the urbanization process. |
