The Impact of Credit Constraint on Agricultural Productivity-Evidence from less developed province of Jiangxi in China

The primary objective of this paper is to explore how formal credit constraints affect farmers' efficiency by the 743 random farmer samples from Jiangxi province in China. The statistic analyses of their individual characteristic, together with the inputs and outputs of their production shows that the constrained value of the production of the credit is RMB 563.2 yuan which is RMB 190 yuan less than those who are not credit constrained. The samples are divided into two groups, the one group with farmers who have been constrained by the formal credit while the other has not. The empirical results of the stochastic frontier production functions show that the agricultural production efficiency is not only affected by the labor and land, but also associated with the formal credit constraints. The results also reveal that efficiency loss of the credit constrained farmers is 17.8% higher than those of the unconstrained farmers. By doing this research, we have got evidence which clearly shows that formal credit constraints do distort the agricultural inputs, and by alleviating formal credit constraint, it is greatly helpful to improve the efficiency of agricultural production.