Does dialect diversity change household credit channel choice?

Abstract

Dialect diversity can create social segmentation and thus impact financial activities, but few previous studies have examined this. This paper merges data from the China Household Finance Survey (CHFS 2019) with the dialect diversity database to examine the impact of dialect diversity on household credit channel choice. We find in areas with greater dialect diversity, households are more likely to choose formal credit channels. The potential mechanisms show that communication costs do not play a significant role, and dialectal diversity promotes household choices of formal credit channels by reducing social trust.