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The choice of formal or informal finance: Evidence from Chengdu, China


  • Zhang, Guibin


China's economic development since 1978 has been fuelled largely by a new private sector which is supported by both formal and informal financing channels. Although there is still a debate on the role of alternative financing mechanisms, the existence of such practices in China is accepted in the literature. This paper looks into the socio-economic patterns of private entrepreneurs regarding the choice of formal or informal finance, using survey data from Chengdu, China. Both the logit and ordered logit model are employed to examine the hypothesised factors. The results show that reputation and relationships play important roles in formal financing of the small private firms in China.

Suggested Citation

  • Zhang, Guibin, 2008. "The choice of formal or informal finance: Evidence from Chengdu, China," China Economic Review, Elsevier, vol. 19(4), pages 659-678, December.
  • Handle: RePEc:eee:chieco:v:19:y:2008:i:4:p:659-678

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    Cited by:

    1. Naudé, Wim & Siegel, Melissa & Marchand, Katrin, 2015. "Migration, Entrepreneurship and Development: A Critical Review," IZA Discussion Papers 9284, Institute for the Study of Labor (IZA).
    2. Fungáčová, Zuzana & Weill, Laurent, 2015. "Understanding financial inclusion in China," China Economic Review, Elsevier, vol. 34(C), pages 196-206.
    3. Cull,Robert J. & Gan,Li & Gao,Nan & Xu,L. Colin, 2015. "Dual credit markets and household access to finance : evidence from a representative Chinese household survey," Policy Research Working Paper Series 7454, The World Bank.
    4. Hanedar Elmas Yaldız & Altunbas Yener & Bazzana Flavio, 2014. "Why Do SMEs Use Informal Credit? A Comparison between Countries," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, issue 1, pages 65-86, July.
    5. Xiangping Jia & Franz Heidhues & Manfred Zeller, 2010. "Credit rationing of rural households in China," Agricultural Finance Review, Emerald Group Publishing, vol. 70(1), pages 37-54, May.
    6. Zhang, Heather Xiaoquan & Loubere, Nicholas, 2013. "Rural finance, development and livelihoods in China," Working Papers on East Asian Studies 94/2013, University of Duisburg-Essen, Institute of East Asian Studies IN-EAST.

    More about this item


    C42 E26 O17 R51 Informal economy Formal and informal sectors Private businesses in China Informal finance;

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies


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