Migrants and default: Evidence from China

Abstract

Reform and opening up have stimulated internal migration; at the same time, home bias and regional discrimination have become pressing problems in China, even though the internet has reduced distance-related informational frictions. Evidence from an emerging peer-to-peer lending platform shows that migration statuses can reveal additional information about borrowers' credit risk. Ceteris paribus, migrants, interprovincial migrants, upward-moving migrants, and long-distance migrants are less likely to default; this is especially true for migrants with stronger educational backgrounds and work experience. Further analyses show that migrants tend to have higher credit quality, lower financing costs, and better economic attributes and assimilate themselves to a higher trusted culture, allowing them to default less than nonmigrants. This means that lenders and trading platforms may rely on the informative content of migration to adjust their lending policies in a fashion that attracts more participation from creditworthy migrants.