Understanding the Relationship between Financial Literacy and Chinese Rural Households’ Entrepreneurship from the Perspective of Credit Constraints and Risk Preference

Abstract

Farmers’ entrepreneurship is an important factor in promoting rural economic growth, yet few studies have systematically discussed the impact of financial literacy. Using the 2021 China Land Economic Survey data, this study analyzes the relationship between financial literacy and Chinese rural households’ entrepreneurship from the perspective of credit constraints and risk preferences by the IV-probit, stepwise regression, and moderating effects methods. This study finds that: (1) the financial literacy of Chinese farmers is low, with only 11.2% of the sample households starting businesses; and (2) Financial literacy can promote rural households’ entrepreneurship. After introducing an instrument variable to control endogenous problems, the positive correlation is still significant; (3) financial literacy effectively alleviates the traditional credit constraints of farmers, thereby promoting entrepreneurship; (4) risk preference weakens the positive impact of financial literacy on rural households’ entrepreneurship. This study provides a reference for optimizing entrepreneurship policies.