Credit constraints and risk exposure in scaled farming: insights from East China

While existing literature has extensively studied the impact of credit constraints on farm productivity, limited attention has been given to their potential effects on risk exposure. This study aims to address this gap by investigating how credit constraints influence the mean, variance, and skewness of farm output distribution using data from 582 scale farms in East China. We utilize a flexible moment-based approach to assess risk exposure and employ a multinomial endogenous treatment effects model to mitigate selection bias. Our findings indicate that supply-side credit constraints lead to a significant 18.9% decrease in gross farm margin and a notable increase in variance, skewness by 21.9% and 22.3%, respectively. Demand-side credit constraints have a similar effect, and the corresponding values are 9.4%, 12.0% and 16.9%, respectively. Additionally, employing a moment-based approach, we estimate that supply-side and demand-side credit constraints elevate farmers’ cost of risk by 6.0% and 5.6%, respectively, assuming a moderate level of risk aversion. This study offers practical insights for policymakers, financial institutions, and farmers to mitigate farm risk exposure and foster sustainable agricultural development in developing nations.