Credit Constraints on Farm Household Welfare in Rural China: Evidence from Fujian Province

Liqiong Lin,Christopher Gan,Weizhuo Wang,Quang T T Nguyen

doi:10.3390/su11113221

Abstract

This study investigates the effect of demographic factors on formal and informal borrowing households in rural Fujian Province. The study tests whether credit constraint affects rural farmers’ welfare in the studied region, using a probit regression and endogenous switching regression model to analyse data collected in 2017 from 960 farm households. Analysis shows that age, poverty, household size, and farmland size operate to constrain credit in formal borrowing. Results also indicate that level of education, farm land size and age have significant impacts on rural household borrowing from informal sources. The results from the endogenous switching model approach suggest that credit constraint does have a significant impact on rural farmers’ consumption and welfare in Fujian province.

Highlights

As is likely to be the case anywhere, where there is poverty, credit is a necessary and important factor in agricultural production systems
The survey was administered in 43 national level and provincial level rural production observation posts
Recognising that credit constraint is very likely to impact the welfare of rural households, we evaluated the contribution of demographic factors and borrowing from informal credit sources on household welfare

Summary

Introduction

As is likely to be the case anywhere, where there is poverty, credit is a necessary and important factor in agricultural production systems. Credit access can significantly increase the ability of households to meet their financial needs for agricultural inputs and productive investments. This is especially so, for households with little to no savings [2]. Feder et al [6] argued that in China, one additional yuan of credit can yield 0.235 yuan additional gross value of output in rural areas. This result is consistent with Guirkinger and Boucher‘s [7] study which showed that a 27 percent loss of agricultural output was associated with credit constraints in rural Peru

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Conclusion