Access to credit and mechanisation service expenditure: An analysis considering access, sources, purposes and amounts of credit

Abstract

This study estimates the impact of access to credit on mechanisation service expenditure by considering farmers' binary credit access decisions and distinguishing between formal and informal credit access. We employ a conditional mixed process model to address selection bias issues and use open-access data from the Rural Development Institute at the Chinese Academy of Social Sciences (Beijing, China) through the 2020 China Rural Revitalization Survey. The theoretical analyses suggest that relaxing credit constraints enables farmers to achieve higher net returns by increasing all variable inputs, including farm machines, until they achieve the expected optimal level. The empirical results reveal that access to credit significantly increases mechanisation service expenditure by 115.5 yuan/mu, and the impact is larger on farmers cultivating small- and medium-sized farms and those residing in the less developed central and western regions. Access to formal and informal credit affects mechanisation service expenditure differently. Specifically, accessing credit from formal sources (e.g., banks) significantly increases mechanisation service expenditure by 44.7 yuan/mu, while accessing credit from informal sources (e.g., friends and relatives) has no statistically significant effect on mechanisation service expenditure. Moreover, credit primarily intended for financing agricultural production significantly increases mechanisation service expenditure by 83.5 yuan/mu, whereas credit used mainly for non-agricultural purposes significantly reduces such expenditure by 25.5 yuan/mu. These findings are further verified by estimating the effects of loan amounts on mechanisation service expenditure. Finally, we also investigate the nexus between mechanisation service adoption and farm performance, revealing that mechanisation service adoption increases crop yield by 12.6% and commercialisation by 77.4%, respectively.