Empirical Analysis on the Performance of Rural Credit Cooperative’s Shareholding Reform Based on the Rationale of Isomorphic Incentive Compatibility

Abstract

Rural economic development helps reduce the income inequality in China. Existing studies show the positive effects of rural reforms, however, whether the rural credit cooperative’s shareholding reform promotes rural economic development and whether effects are exerted through the synergism between agricultural producers and rural financial institutions remain unclear yet. Employing the rationale of isomorphic incentive compatibility from system science, we analyze the necessity and influencing conduit of rural credit cooperative’s shareholding reform theoretically. Analysis shows that only the financial services from rural commercial banks can promote the modernized production, and thus the synergism between them drives rural economic development. Then we make empirical analysis on the effect with a Chinese provincial sample. Comparing to provinces with lower reform progress, the provinces with greater reform progress are influenced more prominently by this reform. Applying coupling coordination degree model, the coordination between agricultural production and rural banking development shows obvious increase, especially after the formal implementation of shareholding reform on rural credit cooperative. Empirical results indicate that this synergism plays positive roles in promoting agricultural growth and reducing the urban–rural income gap. In addition, these effects are more pronounced after the formal implementation of shareholding reform.