IDEAS home Printed from
   My bibliography  Save this paper

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


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


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.

Suggested Citation

  • Feder, Gershon & Lau, Lawrence J. & Lin, Justin Y. & Xiaopeng Luo, 1991. "Credit's effect on productivity in Chinese agriculture : a microeconomic model of disequilibrium," Policy Research Working Paper Series 571, The World Bank.
  • Handle: RePEc:wbk:wbrwps:571

    Download full text from publisher

    File URL:
    Download Restriction: no


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:571. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.