Effect of Market-Oriented Reform of Rural Financial Institutions on Promoting County Economic Growth

Abstract

This study regards the reform of rural credit cooperatives into rural commercial banks as a “quasi-natural experiment.” Based on the panel data of 158 counties and districts from 2005 to 2019, it uses the progressive Differences-in-Differences (DID) to systematically evaluate the effect of the reform of rural credit cooperatives on county economic growth. The study finds that the reform of rural credit cooperatives has significantly promoted county economic growth, which is still valid after parallel trend tests, replacement of explained variables, and consideration of sample self-selection. Heterogeneity analysis finds that the reform of rural credit cooperatives can promote county economic growth more obviously in the samples of urban agglomeration, power-expanding counties, non-impoverished counties, and non-agricultural counties in Central Plains. The mechanism analysis finds that the reform of rural credit cooperatives can promote county economic growth through channels such as improving the level of financial development and optimizing the industrial structure. The conclusions of this study not only expand the understanding of existing references on the effect of rural credit cooperatives on county economic growth, but also provide important inspiration for the government to further deepen the reform of rural credit cooperatives and accelerate the pace of rural revitalization.