Does access to credit really increase mechanization service expenditure? Insights from formal and informal credit perspectives

Abstract

This study estimates the effects of access to credit on mechanization service expenditure, utilizing the 2020 China Rural Revitalization Survey data. We distinguish between formal and informal credit access and employ a conditional mixed process (CMP) model to address selection bias issues. The results reveal that access to credit significantly increases mechanization service expenditure by 386 yuan/mu, and the impact is larger on farmers cultivating small-sized farms and those residing in the less developed western region. Access to formal and informal credit affects mechanization service expenditure differently. Specifically, accessing credit from formal sources (e.g., banks) significantly increases mechanization service expenditure by 261 yuan/mu; accessing credit from informal sources (e.g., friends and relatives) significantly decreases the same by 44 yuan/mu. These results are further verified by estimating the effects of loan amounts on mechanization service expenditure. Our findings highlight the importance of improving farmers' access to formal credit in promoting agricultural mechanization.