Financial inclusion and poverty: The role of relative income

By Linyang Li. China economic review, 2018

119 citations recorded by the source corpus.

Abstract Using the Chinese Household Finance Survey data set, the study shows that concern with relative income significantly stimulates poor households to apply for bank credit. The effect of income comparisons on credit applications can be explained by either a “keeping up with the Joneses” effect, in which the poor seek financing for costly consumption to emulate the wealthy's consumption style and thus suffer persistent poverty, or else a “tunnel” effect, in which the poor are inspired by the wealthy's economic success and enlightened to use credit for investment. Although this study provides no empirical evidence of a “keeping up” effect, it reveals that credit applicants invest significantly more in human capital than non-applicants, and it demonstrates that the “tunnel” effect is the primary incentive for relatively poor households to participate in the credit market. Poor households are capable of using finance to escape from poverty.

Subfields: Accounting, Economics and Econometrics, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/a18a92fb133430ef69d45740435b7db008bbc292