Do formal credit constraints affect the rural household consumption in China?

Th e article investigates the consequences of credit constraints on rural household consumption in China. Based on a unique rural fi nance and consumption survey, the authors fi rst identify the credit constraint status of rural households from formal fi nancial institutions. Th en, they apply an endogenous switching regression model to compare the consumption responses to household production inputs for credit constrained and non-constrained households. Th e estimation results reveal that the credit constraint could result in the crowding out eff ect of the aggregate household consumption from its production inputs. Nonetheless, similar to the non-constrained households, the credit constraint households are capable of smoothing their necessary consumption.