Public pension and borrowing behavior: evidence from rural China

PurposeThe purpose of this paper is to investigate how China's rural public pension affects farmers' formal borrowing, which has always been rationed.Design/methodology/approachThis paper uses a difference-in-difference (DID) estimation to evaluate the effect of the implementation of the New Rural Pension Scheme (NRPS) at the end of 2009 on farmers' formal borrowing.FindingsThe results show that the NRPS significantly reduces farmers' formal borrowing from rural credit cooperatives (RCCs). The effect is significant among the elderly, eastern China and high-income groups.Originality/valueThis study contributes to the literature by identifying another potential reason for rural formal credit shortage. Policymakers and rural formal financial institutions should consider the demand side problem of lending.