Entry threshold for financial institutions , financial inclusion and income distribution
(2.Business School, Hunan Normal University;)
(3.Finance College, Hebei University of Economics and Business)
【Abstract】In 2006, the China Banking Regulatory Commission (CBRC) issued a document to ease the entry threshold for rural financial institutions in several ways. This paper analyzes the impact of this policy on income distribution in rural areas in an empirical way. The study finds that the relaxation of entry threshold has promoted financial inclusion in rural areas, effectively enhanced the income level of middle and low-income groups, and significantly reduced income inequality in rural areas. On this basis, the paper further analyzes the influence paths and finds that the relaxation of market entry threshold has affected rural income distribution mainly through the following channels, namely, rural residents’ employment, occupational choice (by the way of increasing self-employment) and the transfer of land management rights.
【Keywords】 financial inclusion; occupational choice; income inequality;
. ① On December 20, 2006, the CBRC issued Some Suggestions Concerning Adjustment and Relaxation of Entry Policy for Banking Financial Institutions in Rural Areas to Better Support the Construction of Socialism New Countryside to adjust and relax the establishment and entry threshold for new rural financial institutions, including village banks, loan companies and rural fund cooperation societies, from five aspects of capital access, registered capital and working capital, investor qualification and shareholding proportion, business entry threshold and scope, director (committee) and senior executives; it selected six provinces (autonomous regions), Sichuan, Qinghai, Gansu, Inner Mongolia, Jilin and Hubei, as the first batch of pilot areas. [^Back]
. ② Calculated based on the data officially provided by the CBRC. [^Back]
. ① In order to further confirm the reliability of such data, the authors have conducted the correlation analysis with the Gini coefficients in rural areas including six provinces of central China (Anhui, Jiangxi, Hubei, Hunan, Henan and Shanxi) in 1995, 2000 and 2003 calculated by Wang (2006). The results show that the correlation coefficient between the two is 0.8613. In case the data of the sample province—Hunan Province that are not used in this paper are deleted, the correlation coefficient between the two is 89.28% and is significant at the level of 0.1%. [^Back]
. ② For the specific instruction and content of the data, refer to Chinese Family Panel Studies, and the official website: http://www.isss.edu.cn/cfps/ [^Back]
. ③ Due to limited space, the calculation results of related coefficients are not reported. [^Back]
. ④ The relaxation policy was issued in December 2006, and except for six pilot provinces, other provinces have established their new rural financial institutions since 2008. Due to the pilot provinces deleted for the avoidance of possible endogenous problem in this paper, the value of variable of “relaxation of entry threshold” in 2007 is zero. [^Back]
. ① Due to limited space, the descriptive statistical values of the explanatory variables are not reported in this paper. [^Back]
. ② As is explained in the China Statistical Yearbook, the rural jobholders refer to the personnel above 16 years old in rural population who actually participate in production and operation activities and obtain materials or monetary incomes, including the personnel actually participating in labor within the labor age and beyond the labor age, excluding students with registered permanent residence at home, military personnel in active service and the incapacitated, and excluding people waiting for employment and laborers of household duties. [^Back]
. ③ For instance, for some farmers irregularly working in local small factories and workshops, although they have incomes, it is very difficult to include them into the statistical scope. [^Back]
. ① Here, 0.087 is the standard deviation of the logarithmic values of Gini coefficients within the sample range in different provinces and years (within province-year). [^Back]
. ② Due to new classification indexes adopted for the fiscal expenditure since 2007, when the sample periods in this paper are form 1995 to 2010 and from 2003 to 2010, the local total fiscal expenditure is used; when the sample period is from 2009 to 2011, the government expenditure is limited to the sum of expenditure of education, expenditure of scientific technology, expenditure of social security and employment and medical health expenditure in order to discuss the issue about the income distribution of rural residents and more accurately measure the influence of government expenditure. [^Back]
. ① In addition, the increase in financial inclusion degree will ease the financial restraints and increase the accumulation of human capitals. It is a possible route to influence the income distribution, but due to limited data, the empirical test of such potential route of human capital accumulation is not conducted in this paper. [^Back]
. ②The income from wage and salary includes wage, bonus, allowance, income from out-migration for work and extra dividend distributed to individuals. [^Back]
. ③ Production materials include equipment, transportation tools, trees, durable goods, and livestock. [^Back]
. ④ The “land” in this paper includes cultivated land, forest land, pasture and pond. The data of 2009 and 2010 are separately obtained by totaling the same classification indexes in the questionnaire of 2010 and 2011. [^Back]
. ① According to the China Statistical Yearbook, individual jobholders include individual operators, and household helper and worker working in privately or individually-owned business. [^Back]
 Hong Z. Economic Research Journal (经济研究), (2) (2011).
 Liang, J., Wang, X. & Yang, G. Issues in Agricultural Economy (农业经济问题), (3) (2012).
 Lu, M. & Chen, Z. Economic Research Journal (经济研究), (6) (2004).
 Qu, X. & Luo, J. China Agricultural University Journal of Social Sciences Edition (中国农业大学学报(社会科学版)), (6) (2013).
 Shen, T. & Chen, G. Modern Economic Science (当代经济科学), (4) (2014).
 Song, W. Shanghai Finance (上海金融), (7) (2013).
 Su, Q., Zhu J. & Liu, X. Journal of Yunnan University of Finance and Economics (云南财经大学学报), (1) (2015).
 Tian, L. Chinese Industrial Economics (中国工业经济), (2) (2011).
 Tian, J. & Tao, J. Collected Essays on Finance and Economics (财经论丛), (2) (2012)..
 Tian, W. Economic Science(经济科学), (2) (2012).
 Wang, Z. Social Sciences in China (中国社会科学), (4) (2006).
 Zhang, B. & Li, D. Jiangsu Social Sciences (江苏社会科学), (2) (2014).
 Zhang, B., Liu, D. & Zheng, B. China Rural Survey (中国农村观察), (3) (2013).
 Zhou, W. & Zhou, S. Macroeconomics (宏观经济研究), (12) (2011).
AFI: Measuring Financial Inclusion: Core Set of Financial Inclusion Indicators, www.afiglobal.org, April, 2011.
Arora, R. U.: Measuring Financial Access, Griffith University, Discussion Paper in Economics, (7): 1-21, 2010.
Banerjee, Abhijit V. and Newman, Andrew F.: Occupational Choice and the Process of Development, Journal of Political Economy, 101(2): 274-298, 1993.
Banerjee, Abhijit V.; Duflo Esther; Glennerster Rachel and Kinnan Cynthia: The Miracle of Microfinance? Evidence from a Randomized Evaluation, NBER Working Paper, No. 18950, 2013.
Banerjee, A.; Besley, T. and Guinnane, T.: The Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test, The Quarterly Journal of Economics, 109(2): 491-515, 1994.
Beck, Thorsten; Levine, Ross and Levkov, Alexer: Big Bad Banks? The Winners and Losers from Bank Deregulation in the United States, Journal of Finance, 65(5): 1637-1667, 2010.
Beck, Thorsten; Demrg-Kunt, Asli and Levine, Ross: Finance, Inequality and the Poor, Journal of Economic Growth, 12(1): 27-49, 2007.
Berger, Allen N. and Udell, Gregory F.: Relationship Lending and Lines of Credit in Small Firm Finance, The Journal of Business, 68(3): 351-381, 1995.
Berger, Allen N. and Udell, Gregory F.: Small Business Credit Availability and Relationship Lending: The Importance of Bank Organizational Structure, The Economic Journal, 112(477): F32-F53, 2002.
Buera, Francisco; Kaboski, J. and Shin, Yongseok: Finance and Development: A Tale of Two Sectors, The American Economic Review, 101(5): 1964-2002, 2011.
Burgess, Robin and Pande, Rohini: Do Rural Banks Matter? Evidence from the Indian Socila Banking Experiment, The American Economic Review, 95(3): 780-795, 2005.
Chakravarty, S. R. and Pal, R.: Measuring Financial Inclusion: An Axiomatic Approach. Indira Gadhi Institute of Development Research, Mumbai March, 2010.
Clarke, Georg R. G.; Xu, Lixin Colin and Zou, Hengfu: Finance and Income Inequality: What Do the Data Tell Us? Southern Economic Journal, 72(3): 578-596, 2006.
Dabla-Norris, Era; Yan, Ji; Townsend, Robert M. and Unsal, D. Filiz: Distinguishing Constraints on Financial Inclusion and Their Impact on GDP, TFP, and Inequality, NBER Working Paper No.20821, 2015.
Francisco, J. Buera; Kaboski, Joseph P. and Shin, Yongseok: Finance and Development: A Tale of Two Sectors, The American Economic Review, 101(5): 1964-2002, 2011.
Honohan, Patrick: Financial Development, Growth and Poverty: How Close are the Links? in Goodhart, C. (ed.): Financial Development and Economic Growth, Palgrave Macmillan UK Press, 2004.
Jayaratne, J., and Strahan, P.: The Finance-Growth Nexus: Evidence from Bank Branch Deregulation. The Quarterly Journal of Economics, 111(3), 639-670, 1996.
Midrigan, Virgiliu and Xu, Daniel Yi: Finance and Misallocation: Evidence from Plant-Level Data, American Economic Review, 104(2): 422-458, 2014.
Galor, Oded, and Zeira, Joseph: Income Distribution and Macroeconomics, Review of Economic Studies, 60(1): 35-52, 1993.
Gine, Xavier, and Townsend, Robert M.: Evaluation of Financial Liberalization: A General Equilibrium Model with Constrained Occupation Choice, Journal of Development Economics, 74(2): 269-307, 2004.
Greenwood, Jeremy and Jovanovic, Boyan: Financial Development, Growth, and the Distribution of Income, Journal of Political Economy, 98(5): 1076-1107, 1990.
O’Dell, Kathleen: Measuring the Impact of Microfinance: Taking Another Look, Grameen Foundation, Washington, DC, 2010.
Park, Cyn-Young and Mercado, Rogelio V.: Financial Inclusion, Poverty, and Income Inequality in Developing Asia, ADB Economics Working Paper Series, No. 426, 2015.
Sarma, Mandira: Index of financial inclusion, ICRIER Working Paper, No.215, 2008.
Jauch, Sebastian and Watzka, Sebastian: Financial Development and Income Inequality: A Panel Data Approach, Empirical Ecnomics, 51(1): 291-314, 2016.
Towsend, Robert and Ueda, Kenichi: Financial Deepening, Inequality, and Growth: A Model-based Quantitative Evaluation, Review of Economic Studies, 73(1): 251-280, 2006.