Effects of credit constraints on household productivity in rural China

Abstract

Purpose -The purpose of this paper is to examine the effect of credit constraints on agricultural productivity in China. Design/methodology/approach -Using data from a rural financial survey, a switching regression model is used to account for endogeneity and heterogeneity. Carter presents three ways that credit might affect the production functions; a shift along a given production surface by allowing an optimal level of inputs, a shift the production surface out by allowing the purchase of more efficient inputs, and the third is to increase net revenue by more intensive use of fixed inputs and resources. Thus, the effects of factors on agricultural productivity may not be independent of credit status; therefore, separate functions for credit-constrained and non-constrained households are examined. Findings -Empirical estimates of the impacts of credit constraints on agricultural productivity are provided for the Heilongjiang province, a major agricultural production area, in Northeast China. By removing credit constraints, average agricultural productivity was estimated to be increased by 75 percent. Under credit constraints, labor inputs, along with a farmers' education, cannot be fully employed because of an inappropriate mix of inputs. Research limitations/implications -Young farmers may not be able to leverage their comparative advantage for physically intensive farm work under credit constraints. Because of data limitations, the research does not include information on informal credit in the estimation, which may underestimate the effects of credit constraints. Originality/value -This study provides an analysis of the impacts of credit constraints on rural household productivity for the Heilongjiang province, a major agricultural production region, in Northeast China.

Effect of Agricultural Extension Program on Smallholders’ Farm Productivity: Evidence from Three Peasant Associations in the Highlands of Ethiopia

“…This could be attributed to the reason that getting older might pose disadvantages in agriculture because most of the work is physically demanding and also because older household heads might be too conservative to try new and more efficient techniques that could help to increase farm productivity. This result is consistent with the findings of GulUnal (2008) and Dong, Lu, and Featherstone (2010).…”

Do formal credit constraints affect the rural household consumption in China?

“…The ∩-shaped relationship between the possibility of credit constraint and the age of the household head implies that when the farm family enters its middle age 4 , it is more likely to face a budget constraint problem. This finding is consistent with Dong et al (2012), who also find an ∩-shaped relationship between the credit constraint and the age of household head 5 . The possible reason for the ∩-shaped relationship between the credit constraint and the age of farm household head is that younger farms are generally new business starters; as the time passes, their production scale expands, and more and more capital is required to fulfil their production inputs.…”

“…To be consistent with the previous literature, the credit constraints in this paper are considered in the form of a farm household not being able to get the desired amount of credit at a reasonable rate, and in a timely fashion from the formal markets (Dong et al 2012;Kumar et al 2013). Credit constraints need not be tied to the quantity or price rationing, but also to the risk rationing; or the constraints might be due to an inadequate access to the local supply or policy induced constraints such as group guarantees.…”

“…Regarding the endogeneity of the credit constrained status, farm households without a credit constrained problem may have some unobservable characteristics that help them get the credit with a higher probability. Therefore, an endogenous switching regression model should be used to account for both the endogeneity and heterogeneity problems (Maddala 1983;Dong et al 2012;Foltz 2004).…”

“…Other studies demonstrate that the production outputs are significantly lower for the credit constrained households (Carter 1989;Guirking and Boucher 2008;Briggeman et al 2009). In addition, the lack of access to credit could destroy farm productivity by making inefficient production inputs (Feder et al 1990;Dong et al 2012).…”