Abstract:
The role of informal financial market (e.g. pawnshops) played in mitigating the survival risk induced by climate shocks remains unclear and is short of empirical evidence in the existing literature. Using a provincial panel dataset for China during 1470-1900, this paper examines how the pawnshops affect peasant uprisings which were caused by droughts and floods. The study shows that the development of pawnshops contributes to decrease the frequency of peasant uprisings that were triggered by droughts. This is because pawnshops, which provide small mortgage loans, are able to cope with negative economic shocks through financing. Simultaneously the expansion of service (e.g. “Gudian”, deposit) improves its social insurance functions and inhibits the rise of grain price, which can mitigate the survival risk caused by nature disasters. This paper not only validates the risk sharing effects of financial market from a historical perspective, but also provides a theoretical foundation for the standardization of contemporary informal finance.
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