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Finance and Growth for Microenterprises: Evidence from Rural China

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  • Beck, Thorsten
  • Lu, Liping
  • Yang, Rudai

Abstract

Using a survey dataset of Chinese rural households, we find that access to external finance is positively associated with the decision to become entrepreneur and the initial investment for microenterprises. Also, we find that use of informal finance, especially financing from friends and family, is positively associated with sales growth of microenterprises with employees, but not of self-employed. We do not find any significant relationship between the use of formal finance and firm growth. Our findings underline the importance of finance for entrepreneurship and microenterprise growth, and the role of informal finance in the absence of efficient formal financial institutions.

Suggested Citation

  • Beck, Thorsten & Lu, Liping & Yang, Rudai, 2015. "Finance and Growth for Microenterprises: Evidence from Rural China," World Development, Elsevier, vol. 67(C), pages 38-56.
    • Handle: RePEc:eee:wdevel:v:67:y:2015:i:c:p:38-56
    DOI: 10.1016/j.worlddev.2014.10.008
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    More about this item

    Keywords

    finance; entrepreneurship; growth; China;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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