The credit rationing of Chinese rural households and its welfare loss: An investigation based on panel data

- We establish a bivariate probit panel data model for credit rationing.
- We incorporated the situations in which credit demands were partially satisfied.
- We estimate the extent of credit rationing and its impact.
- Approximately 61.5% of China's rural households suffered from credit rationing.
- The credit rationing led to a significant welfare loss of China's rural households.

We examined the impact of credit rationing on the net income and consumption of Chinese rural households by studying survey panel data from 1000 Chinese rural households from 2003 to 2009. Our results revealed that 61.5% of Chinese rural households were rationed in the credit market; 52.0% were completely rationed and 9.5% were partially rationed. Furthermore, this credit rationing caused a 15.7% loss in net income and an 18.2% loss in consumption expenditure for these rural households in China.