Credit Constraint, Credit Adjustment, and Sustainable Growth of Farmers’ Income

Abstract

Research on financial theory and practice has shown that the development of transition economies generally faces two major challenges. First, the less developed regions face more severe financial repression, which leads to imbalanced and unsustainable development of regional economies. Second, farmers face different credit constraints because of their productivity differences, which can further polarize the internal inequality of their income. Based on cross-sectional data of 2037 counties in 30 provinces of China in 2010, this paper employs quantile regression to investigate the relationships among credit constraints, credit adjustment, and the sustainable growth of farmers’ income. Our results confirm that rural residents generally face credit constraints, and there are significant stratified differences in the impact of farmer credit on farmers’ income. Farmers with higher income are more likely to obtain bank credit and continue to grow their income, while farmers with lower income are more likely to fall into the “vicious circle of poverty” because of their lack of capital accumulation. Therefore, to promote more fair and sustainable growth of farmers’ income, it is important to increase the credit available to farmers. Furthermore, it is critical to promote healthy competition among county financial institutions and accelerate the establishment of inclusive financial systems. This can ultimately help ensure sustainable development of agriculture and rural economy.