Research on the Impact of Relationship Networks on Farmers’ Formal Credit Constraints: The Case of China

Abstract

Based on the survey data of Lishui City, Zhejiang Province, this paper uses the Heckman two-stage model to construct a credit constraint function without selection bias, and explores the relationship between the scale and quality of the relationship network and the credit constraints of rural households. Research shows that the scale of the relationship network is affected adversely by urbanization and networking, having a weaker impact on the formal credit constraints of rural households. The quality of the relationship networks can improve farmers’ awareness of formal credit, reduce transaction exposure, regulate farmers’ behavior and act as a “guarantee”, thereby effectively alleviating farmers’ formal credit constraints. At the same time, the relationship network of farmers is gradually becoming more structured, where farmers' social interests are becoming more purposeful. Additionally, formal financial institutions have set a threshold for farmers’ credit, which requires a certain amount of securities for money.