Effects of Credit Constraints on Productivity and Rural Household Income in China
Fengxia Dong, Jing Lu, Allen Featherstone
October 2010 [10-WP 516]
Dong, F., J. Lu, and A. Featherstone. 2010. "Effects of Credit Constraints on Productivity and Rural Household Income in China." Working paper 10-WP 516. Center for Agricultural and Rural Development, Iowa State University.
Agricultural production is strongly conditioned by the fact that inputs are transformed into outputs with considerable time lags, causing the rural household to balance its budget during the season when there are high expenditures for input purchases and consumption and few revenues. With limited access to credit, the budget balance within the year can become a constraint to agricultural production. As is the case in many developing countries, Chinese rural households have been suffering from a lack of access to capital. While China is one of the biggest countries in terms of rural areas and agricultural production, few studies have focused on the impact of credit on agriculture in China. Using survey data, this study aims to examine how credit constraints currently affect agricultural productivity and rural household income in China. The study findings suggest that under credit constraints, production inputs, along with farmers’ capabilities and education, cannot be fully employed. By removing credit constraints, agricultural productivity and rural household income can be improved.
Keywords: credit constraint, household income, productivity, rural China.