The Study of the Impact of Interest Rate Liberalization on Substitution of Formal and Informal Finance in Rural Areas
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| Title | The Study of the Impact of Interest Rate Liberalization on Substitution of Formal and Informal Finance in Rural Areas
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| Author | Xu Yueli,Liu Zhiyuan and Zhou Hang |
| Organization | Guangdong University of Foreign Studies; Hebei North University;Zhejiang Sci-Tech University |
| Email | xuyueli72@163.com；liuzy_stats@163.com |
| Key Words | Duality; Substitution; Effect of Endogenous Technology |
| Abstract | This thesis which expands the effect of nominal income and of structure type by the effect of endogenous technology, discusses the impact of interest rate liberalization on the substitution of formal and informal finance in rural areas. The new theoretical framework proposed in this thesis holds that the reform of interest rate liberalization will induce rural formal finance to balance the decision of funds supply by taking account of the effect of nominal income caused by interest rate price adjustment, the effect of borrower’s structure type based on farmer’s heterogeneity, and the effect of endogenous technology on solving the problem of information asymmetry and supervision. The antagonistic relationship of these three effects dictated that the substitution process of rural formal finance to informal finance presents an inverted "U" shape. The empirical results further indicate that instead of the effect of nominal income caused by interest rate price adjustment, the effect of borrower’s structure type, especially the effect of endogenous technology are the influencing factors of the substitution of formal and informal finance in rural areas. In terms of policy implications, the reform of interest rate liberalization in rural areas including the effectiveness of inclusive finance and targeted financial poverty alleviation should be deliberated estimated. And whether relative policies are conducive to establish a effective inspiriting mechanism to solve the problem of information asymmetry in rural areas plays a decisive role in evaluation. |
| Serial Number | WP1374 |
| Time | 2019-05-30 |
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