Article Category: Research Papers
Published Online: Sep 22, 2025
Received: Jan 09, 2025
Accepted: Apr 20, 2025
DOI: https://doi.org/10.2478/amns-2025-0949
Keywords
© 2025 Xiao Peng, published by Sciendo
This work is licensed under the Creative Commons Attribution 4.0 International License.
With the continuous development of China’s rural economy, rural finance has gradually matured as an important infrastructure to support the development of rural economy, in order to adapt to the structural adjustment of the rural industry and the increasing demand for rural financial services. Rural finance and rural economic development are closely linked, and they promote and complement each other [1–4].
Rural financial development provides support for rural economic growth. First of all, effective rural financial development can provide sufficient financial support to promote rural economic growth. The emergence and development of rural finance promotes agricultural production and rural enterprises [5–8]. Financial institutions provide loans and financing services for farmers, which can help farmers increase the scale of agricultural production and business, and also improve the capital strength of rural enterprises and promote the sustainable development of rural economy [9–11]. With the popularization of digital financial services and the opening of the rural financial market, all kinds of financial products and services have been constantly introduced, and the radiation scope of financial services has been expanded, providing broader support for rural economic growth [12–15].
Rural economic growth promotes the development of rural finance. With the continuous upgrading of rural economic structure, the demand for financial services is also increasing. In order to meet the needs of rural development, various types of rural financial institutions have provided various financial products and services to meet the needs of farmers and improve the efficiency and level of rural finance [16–19]. Rural economic development provides an opportunity for financial innovation. With the increasing dependence of rural economic development on rural finance, all kinds of financial institutions have been exploring and innovating in order to better meet the needs of farmers [20–22].
Based on the understanding of financial deepening theory, financial constraint theory and rural economic growth theory, this paper discusses the interactive development relationship between rural finance and economic growth. In the empirical analysis, the economic data of Province S from 1991 to 2023 are selected as samples to statistically analyze the course of rural economic changes and the trend of rural financial changes. The data related to rural economic development and financial development in Province S are substituted into the statistical model, and appropriate explanatory, explained and control variables are selected. The Granger causality test is used to test the theoretical model, and the impulse response function is applied to empirically analyze the mutual influencing role of rural financial development and rural economic growth in Province S. The degree of change in this influencing role is examined longitudinally to analyze the reasons for this change.
The application of the theory of financial deepening should be reasonably differentiated, as the financial conditions faced by developed and developing countries differ, and the level of monetary investment, market competition, and government regulation varies from country to country. Therefore, financial deepening and financial growth can be effectively achieved by reducing administrative intervention and efficiently allocating resources in the financial system, maintaining a high “real return on money deposits” and stimulating demand for real money balances. The financial constraints theory has long been recognized as a key theory to help governments rationally manage the financial sector and address market failures, with policies and regulations providing the broad framework for the development of the financial system. However, the continuous development of the financial system can hinder economic development by making the government sector more and more binding on the financial system.
The theoretical model of economic growth has quantitatively analyzed the study of economic growth problems. Thereafter, Domar also proposed similar research conclusions, he believed that economic growth is the fundamental solution to social problems, and economic growth is the key to expanding employment, increasing money stock, and increasing consumption. Academics refined and improved the Harrod and Domar research theories, and the new economic growth model is commonly known as the Harrod-Domar model, and the completion of the model represents the beginning of what is now known as economic growth theory. According to the model, a country’s GNP growth rate depends on the capital-output ratio and the savings rate:
However, the real-life capital-output rate and savings rate change more frequently, and the accuracy of the research results is questioned. Therefore, McKinnon corrected the model on the basis of the original study by adding the error parameter
The new economic growth theory is based on the neoclassical economic growth theory, and most experts and scholars take the new economic growth theory as the theoretical basis for studying economic growth problems. Compared with the Harrod-Domar model and its modified model, the new economic growth theory takes a more comprehensive view of economic growth, shifts the focus of research to the impact of technology and institutions, creates a new branch of research on economic growth, and proposes a new economic growth model:
The new economic growth model is in essence an input-output function. According to the new economic growth theory, the growth of the economy serves as the output end of the model, and other factors jointly affect the output of the model. With the development of global integration and the extension of the view of economic globalization, the new economic growth theory is in the process of continuous evolution and development, and academics are constantly improving and amending the relevant models, so that the results of the research meet the needs of today’s economic development and increase the accuracy of the research.
This study synthesizes the advantages of the two models, based on the two economic growth theories mentioned above, through the study of theoretical knowledge to help identify and determine the relevant factors and data acquisition in the econometric model of this paper, to combine the theory with the actual rural economic development, to increase the accuracy of the results of the study, and to make the results of the study more convincing.
Rural economic growth promotes rural financial development. Since rural savers and investors often fit together, finding the most suitable investment projects for investment funds are two basic functions of the financial system. Because of this, along with the increasing scale of economic activity, the demand for capital also expands. On the contrary, in countries where the economy is relatively backward, the rights of investors are often not effectively safeguarded due to the imperfections of the relevant laws and regulations, a situation that results in a vicious circle of reduced willingness to invest, a decrease in investment funds, and an obstruction of the development of financial institutions and the capital market.
Rural finance is a hindrance to the rural economy. Asset bubbles and currency crises can have a negative impact on rural economic growth, hindering its development to a large extent. For backward areas, financial institutions bear the important function of lending and borrowing of goods, and the contribution of financial institutions to economic growth should not be underestimated, but due to the different concepts and understandings, the return of funds to the financial institutions is common, and farmers’ funds basically return to the rural financial institutions in the form of savings, and are not invested in agricultural development and expansion, which is manifested in the obstruction of the growth of the agricultural economy and the slow growth of the agricultural economy. Slow economic growth.
Rural finance and the rural economy are in a mutually reinforcing relationship. Economists through the study of this relationship is divided into two modes: a “supply-led”, that is, rural financial development before the need for rural financial services, rural financial development is a necessary condition for rural economic growth, rural financial development in the stimulation of savings, risk control and rural financial services to promote capital accumulation and the optimal allocation of resources, thus promoting economic growth. The function of rural financial development in stimulating savings, risk control and rural financial services promotes the accumulation of capital and the optimal allocation of resources, thus promoting economic growth. The other is the “demand-following type”, which refers to the fact that the development of rural finance has to a certain extent contributed to the growth of the rural economy, and that the establishment and expansion of rural financial institutions have injected new vitality into the development of the rural economy and brought new opportunities. Rural enterprises and rural-related industries have been provided with financial security, and the pace of industrial development has increased, leading to rapid growth in the rural economy.
Impulse response function is used to consider how the influence of the disturbance term is propagated from one variable to another, and study is the transfer process of the influence, in other words, the basic idea of the impulse response function is to realize the empirical analysis of the influence transfer relationship between vectors through the analysis of the time series model. The following is a simple impulse response function to understand the basic idea. Firstly, the implementation of the impulse response function in the
In the above equation,
Assuming
However, there is a problem in introducing the basic theory of the impulse response function into the VAR model: earlier we assumed that the covariance matrix is non-diagonal, which implies that the other elements in the vector of perturbation terms
The sample interval of data selected for this paper is 1991-2023, and the sources of data are the Statistical Yearbook of Province S, the Statistical Bulletin of Province S of all years, the Statistical Information Network of Province S, and the Financial Operation Report of Province S of all years. This paper uses Eviews 6.0 to analyze the data. After the reform and opening up, the rural economic level of Province S has gained rapid development, and the per capita income of rural residents has also increased greatly, and the improvement of rural production conditions has led to great progress in farmers’ income and agricultural production, and the comprehensive economic strength of rural villages in Province S has made great progress.
From the reform and opening up to the present, the growth history of Chinese farmers’ income is shown in Figure 1, and the growth of farmers’ income can be roughly categorized into the following three phases: 1991-2004, a period of unilateral linear high-speed growth. 2005-2015, the curve of farmers’ income shows a parabola inclined to the upper right, which indicates that farmers’ income had experienced rapid growth and then slowed down. Economic reforms, the state’s adoption of measures such as higher agricultural prices and the development of township and village enterprises led to a peak in the growth of farmers’ incomes in 2009-2011. 2010-2015 was much slower than the national economy. 2015 has been a period of unilateral growth in farmers’ incomes. Since 2015, the level of farmers’ incomes has shown a unilateral, linear and rapid growth, graphically appearing as an upward-sloping straight line. From the perspective of growth rate, the per capita net income of farmers and total farmers’ income have basically resumed double-digit annual growth rates since 2015, and the annual growth rate of farmers’ income exceeded the growth rate of the national GDP for the first time. In 2021, due to the impact of the international financial crisis, the growth rate of farmers’ income slowed down significantly. It can be said that in the third stage, i.e. 2015 - 2023, the growth rate of per capita net income of rural households is higher than the national economic growth rate. This shows that after the state’s emphasis on paying more and more attention to rural issues in 2015, farmers were able to share more of the fruits of the reforms, and their living standards generally improved.
The trend of the total
The level of farmers’ income and the annual growth rate are shown in Table 1, which shows that China’s farmers’ income level has been growing relatively fast, basically between 10% and 20%. However, both the absolute level of farmers’ income and the relative level compared with urban residents are still low, and still need to continue to improve. In 2023, the per capita net income of farmers is only 5,920 yuan. In particular, there are still a significant number of rural people in remote areas whose income levels are well below the national average. Based on the World Bank’s poverty standard of less than $1.32 per person per day of average consumption, there are more than 100 million poor people in China. This is a larger number than the total population of any other country in Europe. Moreover, there is a considerable number of rural people who, although not statistically characterized as poor, have very low levels of income, only slightly above the poverty line. For example, the predominantly mountainous terrain of the high plateau also makes the production and management activities of local farmers’ households subject to the constraints of natural conditions and economic fundamentals, so that in the event of a slight unfavorable change in climatic and other production conditions, a large number of farmers will fall into the ranks of the poor.
Income level and annual growth rate
| Year | Farmer per capita net income | Gross net income | The per capita of the farmers is pure | Annual growth rate |
|---|---|---|---|---|
| 1991 | 133.62 | 1056.40 | ---- | ---- |
| 1992 | 160.23 | 1267.2 | 0.199146834 | 0.199545627 |
| 1993 | 192.42 | 1524.46 | 0.200898708 | 0.203014520 |
| 1994 | 223.46 | 1789.45 | 0.161313792 | 0.173825486 |
| 1995 | 270.14 | 2175.63 | 0.154327385 | 0.215809327 |
| 1996 | 311.83 | 2502.10 | 0.139948048 | 0.150057684 |
| 1997 | 355.47 | 2855.76 | 0.121444847 | 0.141345270 |
| 1998 | 398.64 | 3212.10 | 0.065748545 | 0.124779393 |
| 1999 | 424.85 | 3440.46 | 0.089043191 | 0.071093677 |
| 2000 | 462.68 | 3776.78 | 0.180038039 | 0.097754370 |
| 2001 | 545.98 | 4485.5 | 0.107421517 | 0.187651915 |
| 2002 | 604.63 | 5002.46 | 0.136976332 | 0.115251366 |
| 2003 | 687.45 | 5775.52 | 0.036628118 | 0.154535968 |
| 2004 | 712.63 | 5996.84 | 0.116961115 | 0.038320359 |
| 2005 | 795.98 | 6665.8 | 0.159300484 | 0.111552084 |
| 2006 | 922.78 | 7875.50 | 0.326415830 | 0.181478592 |
| 2007 | 1223.99 | 10462.52 | 0.294830840 | 0.328489620 |
| 2008 | 1584.86 | 13572.3 | 0.213444720 | 0.297230495 |
| 2009 | 1923.14 | 16386.95 | 0.091069812 | 0.207381947 |
| 2010 | 2098.28 | 17623.10 | 0.044779533 | 0.075435026 |
| 2011 | 2192.24 | 17982.62 | 0.010135751 | 0.020400497 |
| 2012 | 2214.46 | 18134.20 | 0.018117283 | 0.008429250 |
| 2013 | 2254.58 | 18223.15 | 0.049197633 | 0.004905096 |
| 2014 | 2365.5 | 18836.80 | 0.046979496 | 0.033674200 |
| 2015 | 2476.63 | 19370.46 | 0.059302358 | 0.028330714 |
| 2016 | 2623.5 | 20153.94 | 0.121631408 | 0.040447155 |
| 2017 | 2942.6 | 22232.12 | 0.106810303 | 0.103115321 |
| 2018 | 3256.9 | 24278.36 | 0.112346095 | 0.092039805 |
| 2019 | 3622.8 | 26457.32 | 0.143441536 | 0.089749060 |
| 2020 | 4142.46 | 2613.95 | 0.149495710 | -0.901201255 |
| 2021 | 4761.74 | 33522.30 | 0.149495710 | 11.824384552 |
| 2022 | 5154.22 | 35526.95 | 0.082423651 | 0.059800491 |
| 2023 | 5920.02 | 39736.35 | 0.148663811 | 0.118484700 |
China’s top-down, government-led rural financial reforms have made the development of rural finance more subservient to the country’s overall economic development strategy, rather than being driven solely by the intrinsic forces of the rural economy and the growth of farmers’ incomes.3 However, as a virtual economy, finance must develop in line with the objective needs of the real economy, and thus reflect the development characteristics of the real economy. However, as a virtual economy, finance must develop in line with the objective needs of the real economy and thus reflect the development characteristics of the real economy. Many of the characteristics of the process of farmers’ income change in China will also be reflected in the course of rural financial development and have an impact on rural financial development.
The trend of changes in agricultural loans (AC) and agricultural savings (AS) is shown in Figure 2. In the same way that the growth of the rural economy is divided into three phases, the development of China’s rural banking sector can be divided into three phases, namely, 1991--2004, 2005--2015, 2015--to--date, which are three stages. From 1991 to 2004, China’s agricultural loans and agricultural household savings grew slowly and linearly. Although China’s economic reform began with the rural reform, the steps of rural financial reform lagged behind the urban financial reform, and the development of rural finance was almost at a standstill during the economic development period, which was dominated by industrialization. From 2005 to 2015, agricultural loans and farm household savings also showed parabolic changes, but unlike the convex parabolic changes in which farmers’ incomes first increased rapidly and then slowed down, agricultural loans and farm household savings reflecting the level of development of the rural banking sector showed a concave parabola, and farm household savings in particular clearly showed slow growth first and then accelerated This may be due to the accumulation effect of farmers’ income growth, which pushes the rapid growth of farmers’ savings with the accumulation of time. The fact that the overall level of agricultural loans is lower than that of farm household savings also explains to a certain extent the inefficiency of rural finance, as farmers’ savings deposits have not been effectively converted into agricultural loans, thus creating the paradox of difficult loans for farmers on the one hand and the outflow of rural capital on the other. From 2015 to the present, agricultural loans and farmers’ savings have realized rapid linear growth, which stems from the rapid growth of the rural economy and the comprehensive promotion of rural financial reform.
Changes in agricultural loans and household savings
Suitable explanatory, interpreted and control variables are selected by taking into account the specific situation of Province S and the principle of availability of indicator data. Variables: the raw data time series of the variables of rural economic growth (CGDP), rural financial development scale (lnRS), rural financial development efficiency (lnRE) and rural financial development structure (lnRC) do not reject the original hypothesis at the 5% significance level, except for CGDP, and contain a unit root, which is a non-stationary time series.
Granger causality test is shown in Table 2, when the corresponding lag order is chosen, the original hypothesis is that the former is not the Granger cause of the latter, and the original hypothesis is rejected at the 5% significance level when the test value p-value is less than 0.05, i.e., the former is the Granger cause of the latter, then lnRS, lnRE, and lnRC are the Granger causes of CGDP, and CGDP is not lnRS, lnRE and lnRC are Granger causes, the test here only shows that rural finance in S province is a Granger cause of rural economic growth, while rural economic growth is not a Granger cause of rural finance, further test may need to lengthen the time dimension or carry out the impulse response function approach.
Granger causality test results
| Original hypothesis | Hysteresis | P value | Results |
|---|---|---|---|
| The LNRS is not the granger reason for CGDP | 4 | 0.0128 | Reject |
| CGDP is not the granger reason of the LNRS | 4 | 0.0926 | Acceptance |
| Natural log re is not CGDP’s granger reason | 2 | 0.0200 | Reject |
| CGDP is not the natural LNRE granger reason | 2 | 0.3254 | Acceptance |
| The LNRC is not the granger reason for CGDP | 2 | 0.0053 | Reject |
| CGDP is not the granger reason for LNRC | 2 | 0.6114 | Acceptance |
On the basis of the previous theoretical analysis and interactive transmission mechanism, this paper empirically analyzes the interactive relationship between rural financial development and rural economic growth. It consists of two parts, firstly, constructing a time series model, divided into three dimensions: scale, efficiency and structure, and utilizing the impulse response function to test the interactive relationship between rural financial development and rural economic growth, so as to provide empirical support for the subsequent policy recommendations.
The impulse response function examines the course of a variable’s response to a unit standard deviation shock to another variable. The direction of the response, the degree of response, and the duration of the response after being shocked can be observed. The impulse response plots of CGDP for lnRS, lnRE, and lnRC are:
The impulse response of CGDP for lnRS is shown in Figure 3, the impact effect between the scale of rural financial development and rural economic growth When examining the direction, degree and duration of the impact between the scale of rural financial development and rural economic growth, it can be seen from the left-hand side of the figure that, based on the available data, when rural economic growth is subjected to the impact of the scale of financial development of the standard deviation of the unit, the impact of the entire The process of producing are positive impact presents influence first increase and then decrease, positive promotion effect in the 7th period to reach the maximum, after which the role is gradually reduced, rural finance through the poverty reduction effect to promote farmers to increase income. When the scale of rural financial development by the unit standard deviation of farmers’ income shock, the first few periods show inhibitory effect, in the 3rd period of inhibitory effect is the largest, and then gradually shifted to play a promotional role. Higher incomes for farmers lead to increased demand for financial services, creating an environment for expanding the scale of rural financial development, with more farmers reaching the service thresholds of financial institutions, while at the same time financial institutions increase their financial support in agricultural production. The impulse response of CGDP for lnRE is shown in Figure 4, the shock effect between rural financial development efficiency and rural economic growth When examining the interaction between rural financial development efficiency and farmers’ income, it can be observed from the left side that: on the basis of the available data, when rural economic growth is subjected to a unit standard deviation financial development efficiency shock, only the first few periods is to play a positive promotional role, and the later period Most of them are negative inhibition, the largest inhibition in the 6th-7th period, the reason for this state of affairs may be due to the low efficiency of rural finance, although the scale of rural finance nowadays has been greatly improved compared with the previous one, but there is still an imbalance effect, i.e., a part of absorbed deposits of farmers flows into urban construction, which can not be truly implemented to support rural development. The right side can be observed, when the rural financial efficiency by the unit standard deviation of the impact of farmers’ income, the first negative inhibitory effect, and gradually transitioned to a positive promotional effect, indicating that the increase in farmers’ income is conducive to improve the efficiency of rural finance, need a certain stage to gradually release the positive promotional effect. The impulse response of CGDP for lnRC is shown in Fig. 5, the shock effect between rural financial development structure and rural economic growth When examining the interaction between rural financial development structure and farmers’ income, it can be observed from the figure that: on the basis of the existing data, when rural economic growth is shocked by the financial structure of the unit standard deviation, it is a suppressive effect in the first 3 periods, and then shifts to a positive effect in the later period and lasts for a longer period of time, indicating that the existing financial structure in the later period to promote the role of farmers to increase income gradually come to the fore. When the rural financial structure by the unit standard deviation of farmers’ income impact, showing first inhibitory effect, and then quickly turned to a positive impact, after which the effect will gradually weaken, indicating that the increase in farmers’ income, help financial institutions gradually recognize the qualifications of farmers, increase in the deployment of rural areas.
Financial development scale and farmers disposable income
Financial development efficiency and farmers disposable income
Financial development structure and farmers disposable income
In this paper, the data related to rural economic development and financial development in Province S are selected and the basic variables are analyzed by descriptive
The basic variables are analyzed statistically. Based on the analysis results, relevant factors and variables are identified, and the following main conclusions are drawn through Granger causality test and impulse response function:
Both farmers’ economic growth and rural financial development can be roughly categorized into three stages: 1991-2004, 2005-2015, 2015-2023. And there is a correlation between the rapid linear growth of agricultural loans and farmers’ savings. There is a long-term stable and cointegrated relationship between the scale, efficiency and structure of rural finance and rural economic growth, with the scale and efficiency of rural finance contributing to rural economic growth and the structure of rural finance inhibiting rural economic growth. At the same time, the growth of farmers’ incomes will, in turn, further promote the expansion of the scale of rural finance.