Social networks and informal financial inclusion

Shijun Chai **Author-Email: 563392431@qq.com, Yang Chen, Bihong Huang () and Dezhu Ye ()
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Shijun Chai **Author-Email: 563392431@qq.com: School of Economics, Xinyang Normal University
Bihong Huang: Asian Development Bank Institute
Dezhu Ye: School of Economics, Jinan University

No 2016-04, RIEI Working Papers from Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration

Abstract: Using the 2011 China Household Finance Survey (CHFS) database, this article explores the heterogeneous impacts of social networks on informal financial inclusion for rural and urban households and identifies two mechanisms through which the informal institution changes households’ financial market decisions. The IV-Probit and IV-Tobit estimation results indicate that social networks significantly increase the probability of the household’s informal financial market participation, the size of informal lending and financing and the ratio of informal lending over the total household assets. By reducing risk aversion and the precautionary saving, we find social networks play a larger role in the urban area of China compared to the rural counterpart. And notably, the effects of informal institution, shaped by various cultural factors and kinships, remain strong and persistent even with formal institutions being firmly established.

Keywords: Social Networks; Informal financial inclusion; Risk attitude; Precautionary saving; Formal institutions (search for similar items in EconPapers)
JEL-codes: G21 O16 P34 Z13 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2016-07-08
New Economics Papers: this item is included in nep-iue, nep-sea, nep-soc, nep-tra and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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