Is Government Provision Necessary for Rural Credit Gap? Evidence from China

Abstract

The shortage of rural credit supply is a global practical problem, and also a concern of the world academia. The purpose of this study is to find evidence of the role of government provision in solving rural credit gap, and provide inspiration for countries to solve the shortage of rural credit supply. In the process, this study uses Goldsmith’s financial development theory as the theoretical guidance, and conducts an empirical analysis of the relationship between the financial interrelations ratio (FIR) and government provision in rural China from 2004 to 2019. The findings show that the rural credit gap with market development is not necessarily a credit market failure, and the government provision is not necessarily effective. Because the government provision is costly, wasteful, and less efficient than government intervention on stimulating demand.