Formal Sector and Informal Sector in Rural Households Credit Market: Substitutes or Complements
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| Title | Formal Sector and Informal Sector in Rural Households Credit Market: Substitutes or Complements
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| Author | Liu Xichuan, Yang Qiming and Chen Lihui |
| Organization | Zhejiang Sci-Tech University; Peking University; Zhejiang University |
| Email | westriverliu@163.com； |
| Key Words | Rural Households Credit Market; Formal Sector; Informal Sector; The Complements; Quadri-variate Probit Model |
| Abstract | It is to accurately understand the relationship between the formal sector and the informal sector in the rural households credit market that concerns the rural financial institutions being improved. Distinguished from the existing studies which focus on rural households’ borrowing behaviour only, this paper uses the 987 rural households survey data of Zhejiang province in 2013 and the the quadri-variate probit model to examine the relationship between the formal sector and the informal sector when controlling rural households’ demand for credit and another sector’ credit supply. The research findings indicated that: (1) The formal sector develops complementarily with the informal one, which is more distinct for richer borrowers. (2) Rural households participate the formal and informal credit market at the same time, while both sectors provide the loans for production and consumption equally and support the same borrower. (3) Both sectors have their own advantage, one will make use of the information elicited by the other’s behavior strategically. The above findings provides new ideas and empirical evidence to understand the relationship between the formal and informal credit sector and to design and improve the rural households credit policy. |
| Serial Number | WP690 |
| Time | 2014-09-09 |
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