Geographical and educational disparities: How credit access drives performance convergence in Chinese MSMEs

This paper examines the impact of financial inclusion, defined as access to formal credit, on the performance of micro, small, and medium-sized enterprises (MSMEs) in China. Applying Instrumental Variable (IV) approach to a unique dataset of 2229 Chinese MSMEs in 2022, we find that financial inclusion significantly improves firm performance, particularly for firms located farther from high-speed railway (HSR) stations and those with less-educated owners. Grounded in Resource-Based Theory (RBT), the analysis highlights how external (e.g., distance to HSR stations) and internal (e.g., owner education) resources influence the benefits of financial inclusion. Our findings suggest that targeted policies enhancing credit access for financially excluded groups can foster convergence in economic growth.