Informal borrowing and home purchase: Evidence from urban China

Ying Fan, Jing Wu, Zan Yang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

10 Citations (Scopus)

Abstract

In this paper, we provide a new explanation for the co-existence of huge housing demand and low dependence on mortgage loans in urban China, focusing on the effect of households’ informal borrowing from relatives and friends. Empirical analysis based on a national-level household survey suggests that because of the low financial cost of informal borrowing, households tend to borrow as much as possible from informal channels until they reach the constraint determined by their social capital, which significantly crowds out formal borrowing such as mortgage loans from commercial banks. Additionally, the existence of informal borrowing significantly increases households’ housing demand. Understanding these effects is especially important in regions with less mature financial systems.

Original languageEnglish
Pages (from-to)108-118
Number of pages11
JournalRegional Science and Urban Economics
Volume67
DOIs
Publication statusPublished - Nov 2017

Keywords

  • China
  • Housing demand
  • Informal borrowing
  • Social capital

ASJC Scopus subject areas

  • Economics and Econometrics
  • Urban Studies

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