Access to credit and farmland rental market participation: Evidence from rural China

Abstract

In this study, we analyze the impact of access to credit on farmland rental market participation of rural households. The study uses a nationally representative survey data of China Family Panel Studies and an endogenous switching probit model that accounts for selection bias for both observed and unobserved factors. Findings reveal that access to credit stimulates farmers' decisions to participate in farmland rental markets by increasing the likelihood of renting in and renting out farmland by about 10% and 20%, respectively. Results also reveal that the impact of access to credit on farmland rental market participation is heterogeneous when it comes to the age of the operator and and geographic locations of farmers. We show that younger credit users have a higher probability of renting in farmland, while their older counterparts have a higher probability of renting out farmland. Besides, credit users residing in central China have a higher probability of renting in farmland, while those living in eastern China have a higher likelihood of renting out farmland. Our findings highlight the importance of improving farmers' access to credit in facilitating the development of rural farmland rental markets.