Political connections and household access to bank loans: evidence from China

Linyang Li, Niels Hermes*, Robert Lensink

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

2 Citations (Scopus)
42 Downloads (Pure)

Abstract

Using data from a large household survey among 8,438 households in China in 2011, we analyse whether the fact that a household head is a member of a political party in China increases the probability that the household has access to a bank loan. We investigate how these connections influence the decision of households to apply for a bank loan (i.e., the demand side) and the decision of the bank to approve the loan (i.e., the supply side). We show that political connections are positively associated with both the households' willingness to apply for a loan, as well as with the probability that they get a loan from the bank. We make two contributions to the literature on the determinants of households' access to credit. We are the first to analyse the role of political connections as a determinant of households' access to bank loans. Second, we analyse the role of political connections throughout the process of allocating bank loans, i.e., we decompose the loan application process into the households' self-selection process and bank's selection process.

Original languageEnglish
Pages (from-to)288-309
Number of pages22
JournalEconomic Research-Ekonomska Istrazivanja
Volume33
Issue number1
DOIs
Publication statusPublished - 1-Jan-2020

Keywords

  • political connections
  • household finance
  • bank loans
  • China
  • COMMUNIST-PARTY MEMBERSHIP
  • FINANCIAL INCLUSION
  • ECONOMIC RETURNS
  • SOCIAL NETWORKS
  • CREDIT ACCESS
  • MARKET
  • BUSINESS
  • PARTICIPATION
  • IMPACT
  • GROWTH

Cite this