Abstract
Trust as a form of social capital plays an important role in improving the cooperation between agents, especially in credit lending activities. Trust building has attracted significant research interest, and gift giving has been shown to be one of its main drivers. Nonetheless, the mechanism of gift giving in the formation of trust networks and the channels through which gift giving and trust affect cooperation require further investigation. In this paper, we first separate social trust into community trust and personal trust, and we examine how gift giving affects the formation of each level of trust. We then explore how trust and gift giving affect rural households’ access to formal and informal sources of credit. Our results show that gift giving mainly helps in forming trust at the personal level rather than the community level. In turn, personal and community trust can facilitate access to informal and formal sources of credit, respectively. In addition, personal trust facilitates access to informal loans for consumption and medical expenses but not production. Overall, our findings show that gift giving is mainly used to build personal trust which facilitates access to informal lending for risk-sharing purposes.
Highlights
Following the seminal work of Putman, numerous studies have shown that social capital can reduce poverty and facilitate rural development [1,2,3,4]
This paper examines how gift giving is used as a tool to influence the accumulation of social capital at the community and individual levels, and how these two levels of social trust affect the economic decisions of households using lending as an example
This paper examines how social activities such as gift giving help to build social capital and enhance its function in facilitating access to formal and informal credit for rural households
Summary
Following the seminal work of Putman, numerous studies have shown that social capital can reduce poverty and facilitate rural development [1,2,3,4]. According to a broad national survey, gift giving accounts for a considerable portion of the funds transfer in the daily lives of rural households, close to around 7% of their annual income (China Labor-force Dynamic Survey, 2016) It is a relatively small share compared with borrowing, which is more than the total income of households. The co-existence of formal and informal borrowing channels indicates that these two levels of trust play complementary role in facilitating the sustainability and development of the rural economy. This section discusses how gift giving and the different levels of trust affect credit accessibility through heterogeneous channels and in relation to different borrowing purposes.
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