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Social Networks and Informal Financial Inclusion in the People’s Republic of China

Author

Listed:
  • Chai, Shijun

    (Asian Development Bank Institute)

  • Chen, Yang

    (Asian Development Bank Institute)

  • Huang, Bihong

    (Asian Development Bank Institute)

  • Ye, Dezhu

    (Asian Development Bank Institute)

Abstract

Using the 2011 China Household Finance Survey (CHFS) database, we explore the heterogeneous impacts of social networks on informal financial inclusion for urban and rural households in the People’s Republic of China. We find that social networks significantly increase the probability of households’ participation in the informal financial market, augment the size of informal financial transactions, and raise the ratio of informal lending to total household assets. We also identify the mechanisms through which social networks affect households’ participation in the informal financial market. By reducing the information cost, perceived risk, and precautionary saving, social networks play a larger role for urban households than for rural households. Notably, the effects of social networks on informal finance are strengthened by the development of the formal financial market.

Suggested Citation

  • Chai, Shijun & Chen, Yang & Huang, Bihong & Ye, Dezhu, 2018. "Social Networks and Informal Financial Inclusion in the People’s Republic of China," ADBI Working Papers 802, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:0802
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    References listed on IDEAS

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    Cited by:

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    2. Hongjuan Zhang & Rong Han & Liang Wang & Runhui Lin, 0. "Social capital in China: a systematic literature review," Asian Business & Management, Palgrave Macmillan, vol. 0, pages 1-46.
    3. Rahman, Sami Ur & Faisal, Faisal & Ali, Adnan & Sulimany, Hamid Ghazi H & Bazhair, Ayman Hassan, 2023. "Do financial technology and financial development lessen shadow economy? Evidence from BRICST economies using heterogenous bootstrap panel causality," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 201-210.
    4. Longpeng Zhang & Wei Jiang & Zhiwei Tang, 2019. "Study on the promotion effect of informationization on entrepreneurship: an empirical evidence from China," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 9(1), pages 1-22, December.

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    More about this item

    Keywords

    social networks; informal financial inclusion; perceived risk; precautionary saving; formal financial market;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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