Research On Rural Residents’ Consumption Based On The Perspective Of Credit

Insufficient domestic demand has always been a serious impediment for China’s reform of economic system and economic sustainable development. In China, the greatest potential to expand domestic demand is in the rural areas. Credit is an effective way for rural residents to increase their consumption. However, because of adverse selection and moral hazard, we have no idea about whether rural credit has played its role. Therefore, it is necessary to verify whether rural credit impacts on rural residents’consumption and how does it work.Based on consumptive function theory, The influence of credit on residents’ consumption level in rural areas has been analyzed from both national and regional perspective. From the national perspective, Three state space models are adopted to study the influence and transmitting mechanism together with influence’s fluctuant trend of credit on residents’consumption in rural areas using national yearly data from 1979 to 2013. From the regional perspective, based on provincial yearly panel from 1999 to 2013, three panel models are used to do the empirical study. Fixed-effect and random-effect models are both used to estimate the equation. The empirical results show the differences of rural credit’s impact on rural residents’consumption among eastern, central and western China. The last, in order to examine the credit’s effect on residents’consumption structure, grey relational coefficient and grey correlation have been calculated based on the theory of grey correlation analysis.Based on the empirical results, main conclusions are as follows. Firstly, taking the nation as a whole, rural credit has a positive effect on rural resident’s consumption expenditure. The main path it works is by the intermediate variable income to promote the consumption in an indirect way. Secondly, the empirical results gained from regional perspective confirm the former results. But in different region, the credit elasticity of consumption is different. Eastern China has the smallest elasticity and central China has the largest one. Western China comes in the middle. Thirdly, consumption structure in rural areas can also be affected by the rural credit. More loans bring higher level of consumption structure. Finally, Income always exerts a positive impact on consumption expenditure and structure. Based on relevant analysis, several factors are contributing to the empirical results:rural residents’concept of consumption and financial knowledge, credit constraints of low income groups, the composition of rural residents’income and so on.Consequently, following suggestions are put forward. Firstly, to speed up the construction of rural financial market and to increase the supply of credit; Secondly, to develop the financial education in rural areas and to improve rural residents’level of financial literacy; Thirdly, to increase rural residents’income and to promote their consumption; Last but not least, to improve the social security system in rural areas and to strengthen government support for education spending.