Can Government Financial Inflows Effectively Reduce Poverty in Poverty-Stricken Areas? Evidence from China

Financial assistance has been found to be an important way to help lift people out of poverty, both theoretically and empirically. However, its effective functioning depends on certain basic conditions. Currently, contiguous poverty-stricken areas, the main areas where impoverished communities live in China, are the main battlefield for poverty alleviation. The Chinese government attaches great importance to the effective functioning of rural finance as a tool to combat poverty in these areas and has invested sizable financial resources. However, the actual impact on rural households of financial infusions has not been analyzed. This article sheds empirical light on the issue using data from a survey of rural households in such areas. The results show that the formal financial transfers from the government and informal finance do not effectively reduce poverty there. Rather, they increase income inequality among households. Nonetheless, cultivation of the human capital, material resources, and social capital of rural households plays a positive role in reducing poverty. Thus, our conclusions may be helpful for adjusting rural financial policies in these areas so as to reduce poverty among those who live there.