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Frontiers of Economics in China

Front. Econ. China    2018, Vol. 13 Issue (3) : 369-396
Orginal Article |
Usury, Market Power and Poverty Traps: A Study of Rural Credit in 1930s’ China
Zhiwu Chen1(), Kaixiang Peng2(), Weipeng Yuan3()
1. Faculty of Business and Economics, The University of Hong Kong, Hong Kong, China
2. School of Economics, Henan University, Kaifeng 475004, China
3. Institute of Economics, Chinese Academy of Social Sciences, Beijing 100836, China
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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.

Keywords usury      rural credit      monopoly power      poverty trap      tenancy     
Issue Date: 30 September 2018
 Cite this article:   
Zhiwu Chen,Kaixiang Peng,Weipeng Yuan. Usury, Market Power and Poverty Traps: A Study of Rural Credit in 1930s’ China[J]. Front. Econ. China, 2018, 13(3): 369-396.
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Zhiwu Chen
Kaixiang Peng
Weipeng Yuan
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