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The choice of formal or informal finance: Evidence from Chengdu, China

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  • Zhang, Guibin

Abstract

China's economic development since 1978 has been fuelled largely by a new private sector which is supported by both formal and informal financing channels. Although there is still a debate on the role of alternative financing mechanisms, the existence of such practices in China is accepted in the literature. This paper looks into the socio-economic patterns of private entrepreneurs regarding the choice of formal or informal finance, using survey data from Chengdu, China. Both the logit and ordered logit model are employed to examine the hypothesised factors. The results show that reputation and relationships play important roles in formal financing of the small private firms in China.

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  • Zhang, Guibin, 2008. "The choice of formal or informal finance: Evidence from Chengdu, China," China Economic Review, Elsevier, vol. 19(4), pages 659-678, December.
    • Handle: RePEc:eee:chieco:v:19:y:2008:i:4:p:659-678
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    More about this item

    Keywords

    C42 E26 O17 R51 Informal economy Formal and informal sectors Private businesses in China Informal finance;

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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