Effects of formal credit on pastoral household expense: Evidence from the Qinghai–Xizang Plateau of China

Formal credit is critical in agricultural production, allowing more expenditure and productive input, thereby improving farmers’ welfare. In pastoral China, formal financial institutions are gradually increasing. However, a limited understanding remains of how formal credit affects herders’ household expenses. Based on a survey of 544 herders from the Qinghai–Xizang Plateau of China, this study adopted the propensity score matching approach to identify the effect of formal credit on herders’ total household expenses, daily expenses, and productive expenses. The results found that average age, grassland mortgage, and other variables significantly affected herders’ participation in formal credit. Formal credit could significantly improve household expenses, especially productive expenses. A heterogeneity analysis showed that formal credit had a greater impact on the household total expense for those at higher levels of wealth; however, it significantly affected the productive expense of herders at lower wealth levels. Moreover, the mediating effect indicated that formal credit could affect herders’ household income, thus influencing their household expenses. Finally, this study suggests that policies should improve herders’ accessibility to formal credit.