Financial permeation and rural poverty reduction Nexus: Further insights from counties in China

• Published in: China economic review Vol. 76; p. 101863
• Main Authors: Wang, Xiuhua, Wang, Yipeng, Zhao, Yaxiong
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.12.2022
• Subjects: Bank branch expansion; Financial permeation; FinTech; Poverty reduction; R11; Financial permeation; FinTech; G21; O18; G23; Poverty reduction; Bank branch expansion
• ISSN: 1043-951X; 1873-7781
• DOI: 10.1016/j.chieco.2022.101863

We investigate how financial permeation affects rural poverty reduction by matching representative county household data with the local banking market, FinTech development, and county characteristics data from China. We discover that financial permeation via bank branch expansion boosts household income and mitigates household vulnerability to poverty, and these effects are magnified on lower-income and more vulnerable households, especially in impoverished counties. Further considering the potential substitution effect of FinTech, we verify that enhancing financial permeation via bank branch expansion still matters to rural poverty reduction even in the digital era. Exploring the channels, we find that financial permeation accelerates rural poverty reduction directly through improving financial utilization and motivating investment activities and indirectly through spurring local economic growth. Notably, the more pronounced marginal effects of the channels on households in impoverished counties, to some extent, explain the poverty reduction effect of financial permeation. The results imply the necessity of financial permeation via bank branch expansion for the realization of shared prosperity. •Financial permeation relieves rural income disparity and prevents vulnerable population from falling into poverty.•Financial permeation via bank branch expansion still matters to rural poverty reduction even in the digital era.•Financial permeation mitigates rural poverty directly through motivating financial utilization and investment activities.•Financial permeation accelerates rural poverty reduction indirectly through spurring local economic growth.