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Study on the Effect and Mechanism of Rural Finance to Rural Economic Development

Author: XueYongGang
Tutor: LiuChuanZhe
School: China University of Mining and Technology
Course: Financial engineering and risk management
Keywords: rural finance rural economic development function mechanism functioneffect
CLC: F832.7
Type: PhD thesis
Year: 2013
Downloads: 79
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Abstract

For one country, its rural economic development limits the degree of its ruralfinance development. In turn, the speed of rural financial development greatly affectsits economic development. The research of the relation between rural financedevelopment and rural economic increase has significant meaning in finding a moreefficient way and countermeasure for rural financial support on rural economicdevelopment and fully playing the former’s positive effect on the latter’s development.The paper, on the basis of the function mechanism of the rural financial supporting onrural economic development, taking Shanxi Province as an example, analyzes indetail the effect of the rural financial support on the rural economic development, andinvestigate thoroughly the situation of the supply and demand of funds and theexisting defect in the development of rural areas in Shanxi province, and accordinglyputs forward some advice in stimulating the financial support on the economicdevelopment in Shanxi rural areas.The paper starting with the function the rural finance plays in rural area,respectively analyzes the function mechanisms of rural financial support on the ruraleconomic development under the theory of Financial Deepening and the theory ofEndogenous Growth, and sorts out the working way of rural finance in supporting therural integral development, agricultural construction, peasants’income increase andrural urbanization. Rural financial role in promoting the rural economy lies in aspectsas the funds supply, more efficient fund utilizing and promoting the agriculturalscience progress and productivity.After the analysis of the existing situation of rural finance and rural economicdevelopment in Shanxi since1978, a conclusion can be made: from the respective ofShanxi’s rural financial interrelation ratio, its rural finance has obtained greatdevelopment since the policy of reform and opening up. However, in terms of therural financial developing efficiency, the rural capital allocation efficiency is low..From the situation of agricultural financial subsidies, the proportion has been limitedaround about6~8%since1996. The proportion of gross agricultural production in therural economy is decreasing, with the contrast of the increasing proportion of ruralindustry and other non-agricultural industries in rural economy. The income gap ofurban and rural residents is increasingly widened. As a whole, Shanxi’s ruraleconomic development still faces the difficulty of fund shortage.Then, the paper analyzes the function efficiency of Shanxi rural finance to ruraleconomy from the aspects of rural financial supporting in the rural integraldevelopment, agricultural construction, peasants’ income increase and ruralurbanization and comes to the conclusion: the efficiency of rural financial systemdevelopment has a strong and long effect on the rural integral development andagricultural economic construction. The rural investment in fixed assets has moreinfluence on the peasant’s net income than rural financial development level indexwithin both long term and short term. The efficiency of rural financial system development of Shanxi province has played an obviously positive role in improvingthe rural urbanization level. And the promotion of the efficiency of rural financialsystem development can effectively gear up the development of township enterprisesand hence increase the peasants’ income.Through the analysis of the statistical survey of the situation of finance supplyand demand in Shanxi rural areas, such conclusion can be made: the existing normalfinancing institutions in Shanxi rural areas have such problems as having far moreabsorption capital from the rural area than investment capital, low agricultural loanapproval rates and agricultural loan volumes. The paper takes441families from21official villages as investigating samples of7counties, which include Qin county,Wuxiang county, Gaoping county, Zezhou county, Daixian county, Xingxian countyand Taigu county, and particularly interviewing12rural minor enterprises and22farmers specialized cooperative. The investigation shows that the demand subjects ofrural finance, like farmers, farmers specialized cooperative and rural minor enterprises,obtain credit fund mainly through private lending, and the phenomenon of folkrelending at high interest rates is still popular. Shanxi rural financial market isimmature. The paper further estimates the financial gap of the supply and demand offund in rural economic integral development. At present, the rural financial gap isever increasing, mainly because of the rural finance outflow, high requirement of ruralfinancial institution. It is difficult for peasants to obtain loan without effectivecollateral.According to the practice and empirical test and investigation analysis of Shanxirural finance’s supporting rural economic development, the paper proposes toestablish multilevel and diverse finance service system, improve finance marketfunction, develop and standardize rural petty loan, establish and improve the depositinsurance system of rural finance institution, agricultural insurance system, strengthenthe market discipline and supervision of rural finance.

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