Why rural households choose not to participate in the open and optional village development fund in the poverty stricken areas of China
Abstract: This paper tries to answer why certain households choose not to participate in the village development fund in the poverty stricken areas of China and takes advantage of the data from evaluation survey of the implemented financial project in Henan and Sichuan Provinces of China in 2009. The Probit model, Tobit model and Multinomial Probit model are used to explore the determinant factors that influence the participation decision in the village development fund of the villagers, the amount participating households borrowed from the fund and the borrowing behaviors among the main lending sources respectively. The paper finds that households with younger or older householders, low household wealth level, less times participating in the earlier stage promotion activities, low cognitive level of the formal financial markets and no cadre have higher probability of self-constraint and precautionary behaviors in relation to participating in the village development fund. Household has craftsman, has cadre, has high cognitive level of the formal financial market and from Wangcang County borrows more from the fund while household with highest education level borrows least. Cognitive level of the formal financial markets affects borrowing behaviors from all the lending sources; householder’s age and education level, household size, households’ wealth, households with craftsman/migrant worker/cadre, the amount of money can be borrowed from the private lenders and County dummy affect borrowing behaviors from specific lending sources significantly. Thus, complete the interrelated insurance market for borrowers, guarantee the nine-year compulsory education in the rural areas, choose appropriate promoting time , strengthen the rural medical insurance system and education loan mechanism help reduce the self-constraint behavior. Also, technical training encourages households borrow for investment demand. Building effective local connections with markets is essential for carrying out income generating activities. Finally, the cognitive level of financing activities and financial markets is cultivated through participating in the village development fund; with the increment of the household income level, the access to the RCCs will be easier for the rural villagers.
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