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The Nexus between Credit Channels and Farm Household Vulnerability to Poverty: Evidence from Rural China

Hong Sun (), Xiaohong Li () and Wenjing Li ()
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Hong Sun: School of Economics, Wuhan Textile University, Wuhan 430200, China
Xiaohong Li: School of Economics, Guizhou University, Guiyang 550025, China
Wenjing Li: School of Economics, Wuhan Textile University, Wuhan 430200, China

Sustainability, 2020, vol. 12, issue 7, 1-18

Abstract: It is well known that finance is at the core of economic activities, and rural finance is an important force for agricultural development, rural economic growth, and farmer income growth, but how rural credit affects vulnerability to poverty of farm households is not yet known. The study on the nexus between the credit channels and vulnerability to poverty can not only realize targeted poverty alleviation but also promote sustainable rural development. This study measures vulnerability to poverty of Chinese farm households by three-stage feasible generalized least squares (FGLS) and tests for the impact of two credit channels on farm household’s vulnerability to poverty based on China Household Finance Survey data. We mainly found that the proportion of structural poverty in western areas is comparatively large, and risky poverty of farm households in eastern areas is relatively serious. The high education cost may be an important factor in farm household poverty; the cost-effectiveness of education is higher than that of earnings. Farm household vulnerability to poverty with folk loans is 0.2% higher than that of farm households without private credit; however, this is not significant. Farm household vulnerability to poverty with bank credit is 0.4% lower than households without bank credit, which is significant. For farm households who have a higher level of vulnerability to poverty, the effect of bank credit on reducing vulnerability to poverty is greater. Moreover, we replaced the vulnerability-to-poverty variable with a more rigid indicator to test the relationship between the credit channels and vulnerability to poverty and got the same results as before.

Keywords: rural sustainable development; private credit; bank credit; vulnerability to poverty; China Household Finance Survey (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2020
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