The Impact Mechanism of Free Competition Among Financial Institutions on the Credit Accessibility of Farmers

Abstract

Using data from rural fixed observation points in Zhejiang Province from 2003 to 2022, this study employs a difference-in-differences (DID) model to explore the impact of free competition among financial institutions on the credit accessibility of farmers and its underlying mechanisms. The results show that free competition among financial institutions significantly improves farmers' credit accessibility. The mechanism analysis indicates that such competition leads to an increase in the number of loan officers, promotes the marketization of certain financial functions, and enhances the dissemination of financial knowledge, thereby improving farmers' financial literacy and reducing financing constraints. Specifically, agricultural industrialization and digitalization both indirectly affect the relationship between free competition among financial institutions and farmers' credit accessibility. Based on these developments, financial institutions are able to provide more efficient and convenient financial services, contributing to the formation of a financial ecosystem. Further analysis reveals a noticeable "siphoning effect" of financial competition in Zhejiang Province, where it significantly promotes the growth of rural credit in the region while suppressing the growth of rural credit in neighboring areas. The study’s conclusions offer both empirical insights into rural financial market reform from the perspective of policy changes and practical reference from the perspective of regional spillovers for the development of rural finance.