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Farm credit and credit demand elasticities in Shaanxi and Gansu

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  • Turvey, Calum G.
  • He, Guangwen
  • MA, Jiujie
  • Kong, Rong
  • Meagher, Patrick
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    Abstract

    This paper empirically estimates individual household credit demand elasticities based on 897 farm households surveyed in Shaanxi and Gansu provinces in the People's Republic of China (PRC) in October 2009. We used survey-based experimental techniques to extract individual household credit demand functions from which we estimated point demand elasticities. From a theoretical point of view, we proposed that as interest rates fell the demand for credit increased in elasticity, and this appears to hold in our data. We find a range of elasticities with mean point estimates of about −0.6. We find that nearly 20% of farm households have nearly perfectly inelastic demands for credit but we also find that nearly 20% have elasticities above −0.75 including some 15% that have elasticities greater than −1.0. Previous studies that have argued against credit policies because of the low inelasticity of demand do not generally hold. There is much heterogeneity in credit demand and we would argue that a full spectrum of targeted credit policies can be used to address differences across farms.

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    Bibliographic Info

    Article provided by Elsevier in its journal China Economic Review.

    Volume (Year): 23 (2012)
    Issue (Month): 4 ()
    Pages: 1020-1035

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    Handle: RePEc:eee:chieco:v:23:y:2012:i:4:p:1020-1035

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    Web page: http://www.elsevier.com/locate/chieco

    Related research

    Keywords: Credit demand; Credit demand elasticities; Duration elasticity; Tweedie regression; Agricultural finance; People's Republic of China; PRC;

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    1. Turvey, Calum G. & Kong, Rong, 2010. "Informal lending amongst friends and relatives: Can microcredit compete in rural China?," China Economic Review, Elsevier, vol. 21(4), pages 544-556, December.
    2. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, vol. 53(2), pages 339-371, August.
    3. Calum G. Turvey & Rong Kong & Xuexi Huo, 2010. "Borrowing amongst friends: the economics of informal credit in rural China," China Agricultural Economic Review, Emerald Group Publishing, vol. 2(2), pages 133-147, May.
    4. David B. Gross & Nicholas S. Souleles, 2001. "Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data," NBER Working Papers 8314, National Bureau of Economic Research, Inc.
    5. Dean S. Karlan & Jonathan Zinman, 2008. "Credit Elasticities in Less-Developed Economies: Implications for Microfinance," American Economic Review, American Economic Association, vol. 98(3), pages 1040-68, June.
    6. Dehejia, Rajeev & Montgomery, Heather & Morduch, Jonathan, 2005. "Do interest rates matter? credit demand in the Dhaka Slums," MPRA Paper 33146, University Library of Munich, Germany.
    7. Bell, Clive & Srinivasan, T N & Udry, Christopher, 1997. "Rationing, Spillover, and Interlinking in Credit Markets: The Case of Rural Punjab," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 557-85, October.
    8. Jaclyn D. Kropp & Calum G. Turvey & David R. Just & Rong Kong & Pei Guo, 2009. "Are the poor really more trustworthy? A micro-lending experiment," Agricultural Finance Review, Emerald Group Publishing, vol. 69(1), pages 67-87, May.
    9. Richard L. Meyer, 2011. "Subsidies as an Instrument in Agriculture Finance : A Review," World Bank Other Operational Studies 12696, The World Bank.
    10. Adams, Dale W & Von Pischke, J. D., 1992. "Microenterprise credit programs: Deja vu," World Development, Elsevier, vol. 20(10), pages 1463-1470, October.
    11. Anjini Kochar, 1997. "Does Lack of Access to Formal Credit Constrain Agricultural Production? Evidence from the Land Tenancy Market in Rural India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 754-763.
    12. Bell, Clive, 1990. "Interactions between Institutional and Informal Credit Agencies in Rural India," World Bank Economic Review, World Bank Group, vol. 4(3), pages 297-327, September.
    13. Sudipta Bhattacharyya, 2005. "Interest rates, collateral and (de-)interlinkage: a micro-study of rural credit in West Bengal," Cambridge Journal of Economics, Oxford University Press, vol. 29(3), pages 439-462, May.
    14. Ranjula Bali Swain, 2002. "Credit Rationing In Rural India," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 27(2), pages 1-20, December.
    15. Welsh, Michael P. & Poe, Gregory L., 1998. "Elicitation Effects in Contingent Valuation: Comparisons to a Multiple Bounded Discrete Choice Approach," Journal of Environmental Economics and Management, Elsevier, vol. 36(2), pages 170-185, September.
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