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Usury, Market Power and Poverty Traps: A Study of Rural Credit in 1930s¡¯ China

Author

Listed:
  • Zhiwu Chen

    (Faculty of Business and Economics, The University of Hong Kong, Hong Kong, China)

  • Kaixiang Peng

    (School of Economics, Henan University, Kaifeng 475004, China)

  • Weipeng Yuan

    (Institute of Economics, Chinese Academy of Social Sciences, Beijing 100836, China)

Abstract

This paper studies the cross-regional variation of interest rates in China in the 1930s. Based on county-level data from the Buck (1941) rural surveys, we examine factors that may have influenced rural interest rates in pre-1949 China. Since the quality of institutions that define property rights and facilitate contract enforcement is important for such transactions as land tenancy arrangements, we treat land tenancy rate (or percentage of owner-farmers) as a proxy for institutional quality. Contrary to the popular belief among historians and economists that usury or high interest rates caused persistent poverty, we find that while the monopoly-exploitation hypothesis has little explanatory power, a region¡¯s institutional quality and income level are persistent and significant determinants of interest rates. Thus, poverty is a key driver of high rates of interest. Economic growth and the development of market institutions are crucial for lowering high interest rates and combating usury.

Suggested Citation

  • Zhiwu Chen & Kaixiang Peng & Weipeng Yuan, 2018. "Usury, Market Power and Poverty Traps: A Study of Rural Credit in 1930s¡¯ China," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 13(3), pages 369-396, September.
    • Handle: RePEc:fec:journl:v:13:y:2018:i:3:p:369-396
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-007-018-0019-6
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    Cited by:

    1. Matthew Lowenstein, 2024. "Rotating savings and credit associations (ROSCAs) in prewar China: Communal finance and the roots of economic development," Economic History Review, Economic History Society, vol. 77(3), pages 796-822, August.

    More about this item

    Keywords

    usury; rural credit; monopoly power; poverty trap; tenancy;
    All these keywords.

    JEL classification:

    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East
    • N35 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - Asia including Middle East
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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