An Empirical Study On Impacts Of Household Microfinance On Economic Development

Microfinance (or microcredit) program has been widely promoted in developing countries in recent years. The existing literature shows that microfinance program targeted at rural households has significant impacts on their income growth and poverty alleviation. However, most of the studies are based on household level micro data, rare papers have investigated the macro level impacts of microfinance program. This paper investigates the impacts of Rural Household Microfinance Program (RHMP) in China through a dynamic panel regression model (with Corrected Least Square Dummy Variable Estimator). The data we used is a short-time panel with annual information on the amount of microfinance and other local economy variables of 10 counties within Nanping prefecture. The study shows that, rural residents are largely subjected to credit constraint in Nanping. The RHMP project has significant positive 2-year-lagged impact on rural residents' per capita income and the return on investment is pretty high. It is very like that the impact works through the channel of the development of the second and third agriculture-related industry sectors. Based on these quantitative analysis and qualitative analysis, we also provide some discussions on policy implications. The paper has five chapters:In the first chapter, we provide an introduction on the background of the wide-spreading microfinance programs in developing countries, a brief literature review and a short discussion on research methodology we employed. Then, in the second chapter, we discuss the history of RHMP in China; a qualitative analysis on policy design, potential impacts and problems could also be found. After that, we have our dynamic panel data analysis in chapter 3. The model examines the impact of RHMP on local economic development. In chapter 4, according to the results we obtained above, we give policy recommendations. Chapter 5 concludes.