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Effects of credit constraints on rural household technical efficiency: Evidence from a city in northern China

Jianmei Zhao (China Academy of Public Finance and Public Policy, Central University of Finance and Economics, Beijing, China)
Peter J. Barry (Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, Champaign, Illinois, USA)

China Agricultural Economic Review

ISSN: 1756-137X

Article publication date: 28 October 2014

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Abstract

Purpose

The purpose of this paper is to evaluate the effects of access to formal credit on rural household technical efficiency in China.

Design/methodology/approach

Based on the rural household survey data in Weifang city, Shandong province in northern China, the authors apply recent developed bootstrapped DEA approach to investigate rural technical efficiency at the household level under the consideration of off-farm activities. Rural households are then identified as credit constrained and classified as supply-side and demand-side credit constraints by applying direct elicitation method. Finally, the authors apply a tobit regression to examine the effects of credit constraints on household technical efficiency.

Findings

Rural households in China not only suffer supply-side credit constraints, but also demand-side credit constraints resulted from the transaction costs and risk rationing. The tobit regression discloses that demand-side credit constraints impose significant negative impacts on household technical efficiency.

Originality/value

The authors clarify the definition of credit constraints and classify the credit constraints into supply-side and demand-side credit constraints. The results of this paper have significant policy implications for rural finance policies in China.

Keywords

Acknowledgements

JEL Classifications — Q12, Q14, O4

The authors appreciate the financial support from Humanities and Social Science Project (No: 10YJC790393), Ministry of Education of the People's Republic of China.

Citation

Zhao, J. and J. Barry, P. (2014), "Effects of credit constraints on rural household technical efficiency: Evidence from a city in northern China", China Agricultural Economic Review, Vol. 6 No. 4, pp. 654-668. https://doi.org/10.1108/CAER-10-2012-0115

Publisher

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Emerald Group Publishing Limited

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