Private Lending And Income Distribution In Modern Rural China

Poverty has always been one of the main watched problems in both domestic and international.Also, private lending is an important component in the traditional rural society of China. And the usury is the most hot and argumentative topic of the studies on private lending. Then how does the usury affect the traditional rural society in China ? What role does the usury play in the process of rural poverty and the gap between the rich and the poor? Is the usury the tool that the landlords exploit the peasants ? Is the usury the chief criminal that aggravate the gap between the rich and the poor and make the peasants get into the poverty trap ? Based on the survey data in Manchuria in 1930 s which is researched by the puppet regime in Manchuria, this paper deeply studies and analysis the complex relationship between private lending and wealth gap between the rich and the poor.Acknowledging the theoretical framework that rate and gene coefficient are jointly determined and the endogeneity of the gene coefficient, in the process of the empirical study, this paper formulates a simultaneous equations model(SEM) to investigate the relationship between rate and gene coefficient using the Manchuria data in 1935 and 1936.The SEM contains two structural equations,one is about interest rate, the other is about gene coefficient. However, the choice of instruments and the identification problem of this SEM should be solved in the first. In this SEM, it chooses the village scale which has an effect on gene coefficient but no on interest rate as the instrument for the first structural equation and the network as the second structural equation’s instrument. After solving the instruments for the equations, it is obvious that all the two equations are over-identified. Then,a two-stage least square(2SLS) method, which is the most common method used for estimating simultaneous equations models, may be the best simple estimation method. Furthermore, this paper also estimates the relationship between per capita income and private lending about peasant households to make the empirical results more steady and also examine whether the lower the income, the higher the interest rate and the bigger the borrowing.This paper carried out two levels regression analysis about the equations that the paper has structured according to the survey data. In the end, based on the data about the countries, this paper found that, the private lending rate not only has a significant negative correlation with gene coefficient about per capita income, but also has a significant negative correlation with gene coefficient about per capita land. That is to say, the higher the interest rate of the village is, the lower both the gene coefficient about per capita income and per capita land are, in the same time, meaning that the smaller the gap between the rich and the poor. Furthermore, this paper found that,even if you control some conventional variables, the two gene coefficients are still significant negative.Also, relatives or friends network is the main source of private lending capital. The wider the network,the easier the capital is got,the lower the rate.More, per capita income, per capita land and the village scale are all have significant effect on gene coefficient about both per capita income and per capita land,then we can see that, the factors of the poverty differentiation are various and complex. In a word, this paper don’t support the hypothesis that usury results in the gap between the rich and the poor, and it proves the relationship between usury and poverty trap. In the second level regression analysis, based on the data about the households, this paper found that,the loans in the households have no significant influence on the per capita income about the peasant households,but they have significant negative effect on the per capita land. This show that, income and private lending have no direct contact, that is to say,the peasant household’s loans don’t lead to their lower income.To conclude, this study are against the hypothesis that usury lead to the gap between the rich and the poor.This paper also found that, the commodity or the market degree of the village presents significant positive, meaning that the higher the degree is,the poorer the peasants are. Finally, the second regression analysis further analyze the relationship between private lending and wealth gap between the rich and the poor.