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Credit's effect on productivity in Chinese agriculture : a microeconomic model of disequilibrium

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Author Info
Feder, Gershon
Lau, Lawrence J.
Lin, Justin Y.
Xiaopeng Luo

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Abstract

Many government programs want to provide more credit to the farm sector to increase agricultural productivity. If the marginal effect on productivity is small, those resources might be put to better use elsewhere. The authors conducted an econometric analysis of the effect of credit on output supply which recognizies that credit markets are not necessarily at equilibrium - so that credit rationing and nonborrowing are both possible. Only about 37 percent of the farmers in the study area were constrained by inadequate formal credit. Informal credit sources provided funds for specific non-agricultural activities that were not fungible. The results indicate that one additional yuan of liquidity yielded 0.235 yuan of additional gross value of output. These results suggest that for the area of China covered in the study, a good part of the short-term credit may actually be used for consumption and investment. Two conclusions are suggested for evaluating the probable effect of expanding agricultural credit. First, not all farmers, and sometimes only a minority, are constrained in their farming operations by inadequate credit. And second, greater supplies of formal credit will be diverted in part to consumption, so the likely effect on output will be smaller than what one might expect if all funds are assumed to be used productively.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 571.

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Date of creation: 31 Jan 1991
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Handle: RePEc:wbk:wbrwps:571

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Keywords: Banks&Banking Reform; Financial Intermediation; International Terrorism&Counterterrorism; Economic Theory&Research; Environmental Economics&Policies;

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  1. Takashi Kurosaki, 2005. "Crop Choice, Farm Income, and Political Relations in Myanmar," Hi-Stat Discussion Paper Series d04-80, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  2. Diagne, Aliou, 1998. "Impact of access to credit on income and food security in Malawi," FCND discussion papers 46, International Food Policy Research Institute (IFPRI). [Downloadable!]
  3. Arcand, Jean-Louis & d'Hombres, Beatrice, 2006. "Testing for Separation in Agricultural Household Models and Unobservable Household-Specific Effects," MPRA Paper 1863, University Library of Munich, Germany. [Downloadable!]
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  4. Boucher, Stephen & Barham, Bradford, 2004. "Land Market Liberalization And Wealth Differentiated Land Access: Panel Evidence From Honduras And Peru," 2004 Annual meeting, August 1-4, Denver, CO 20021, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  5. Johnson, Nancy L., 1998. "The Demand For Private Property Rights: Land Titling, Credit, And Agricultural Productivity In Mexico," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20998, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  6. Arega Alene & V. Manyong, 2007. "The effects of education on agricultural productivity under traditional and improved technology in northern Nigeria: an endogenous switching regression analysis," Empirical Economics, Springer, vol. 32(1), pages 141-159, April. [Downloadable!] (restricted)
  7. Zeller, Manfred, 1994. "Determinants of credit rationing," FCND discussion papers 2, International Food Policy Research Institute (IFPRI). [Downloadable!]
  8. Solis, Daniel & Bravo-Ureta, Boris & Quiroga, Ricardo, 2006. "The Effect Of Soil Conservation On Technical Efficiency: Evidence From Central America," 2006 Annual meeting, July 23-26, Long Beach, CA 21345, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  9. Enjiang Cheng, . "HOUSEHOLD HEADS, NON-ECONOMIC FACTORS AND GRAIN PRODUCTION IN CHINA IN THE 1990s," Working Papers 98_5, Chinese Economies Research Centre.
  10. Zeller, Manfred & Ahmed, Akhter U. & Babu, Suresh Chandra & Broca, Sumiter S. & Diagne, Aliou & Sharma, Manohar, 1996. "Rural finance policies for food security of the poor," FCND discussion papers 11, International Food Policy Research Institute (IFPRI). [Downloadable!]
  11. Ben Groom & Pauline Grosjean & Andreas Kontoleon & Tim Swanson & Shiqiu Zhang, 2008. "Relaxing Rural Constraints: a ‘Win-Win’ Policy for Poverty and Environment in China?," Environmental Economy and Policy Research Working Papers 30.2008, University of Cambridge, Department of Land Economics, revised 2008. [Downloadable!]
  12. Peter Lawrence, 2002. "Household Credit and Saving:Does Policy Matter?," Keele Economics Research Papers KERP 2002/04, Centre for Economic Research, Keele University. [Downloadable!]
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  13. Petrick, Martin, 2002. "Credit Rationing in the Polish Farm Sector: A Microeconometric Analysis Based on Survey Data," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24951, European Association of Agricultural Economists. [Downloadable!]
  14. Mikkel Barslund & Finn Tarp, 2007. "Formal and Informal Rural Credit in Four Provinces of Vietnam," Discussion Papers 07-07, University of Copenhagen. Department of Economics. [Downloadable!]
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  15. Diagne, Aliou & Zeller, Manfred, 2001. "Access to credit and its impact on welfare in Malawi:," Research reports 116, International Food Policy Research Institute (IFPRI). [Downloadable!]
  16. Andreas Kontoleon & Pauline Grosjean, 2007. "How Sustainable are Sustainable Development Programs? The Case of the Sloping Land Conversion Program in China," Environmental Economy and Policy Research Working Papers 26.2007, University of Cambridge, Department of Land Economics, revised 2007. [Downloadable!]
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  17. Diagne, Aliou, 1999. "Determinants of household access to and participation in formal and informal credit markets in Malawi," FCND discussion papers 67, International Food Policy Research Institute (IFPRI). [Downloadable!]
  18. Swaminathan, Hema & Findeis, Jill, 2003. "Impact Of Credit On Labor Allocation And Consumption Patterns In Malawi," 2003 Annual meeting, July 27-30, Montreal, Canada 22118, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  19. Foltz, Jeremy, 1998. "Credit Market Constraints And Profitability In Tunisian Agriculture," 1998 Annual meeting, August 2-5, Salt Lake City, UT 21017, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  20. Lapar, Maria Lucila A., 1994. "The Impact of Credit on Productivity and Growth of Rural Nonfarm Enterprises," Discussion Papers DP 1994-14, Philippine Institute for Development Studies. [Downloadable!]
  21. Renos Vakis & Elisabeth Sadoulet & Alain de Janvry & Carlo Cafiero, 2004. "Testing for Separability in Household Models with Heterogeneous Behavior: A Mixture Model Approach," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 990, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
  22. Phinseng Channgakham, 2006. "The effects of a fertilizer loan on dry-season rice cultivated areas in Laos," Economics Bulletin, Economics Bulletin, vol. 15(12), pages 1-8. [Downloadable!]
  23. Maldonado, Jorge H. & Gonzalez-Vega, Claudio, 2004. "Linking poverty, natural resources, and financial markets: a model of land use by rural households in El Salvador," 2004 Annual meeting, August 1-4, Denver, CO 20085, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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