Has financial access improved agricultural technical efficiency? – evidence from two family farm demonstration zones in China

Purpose: Finance is crucial to boosting agricultural development in developing countries. This paper aims to investigate the effects of rural formal and informal financial access on agricultural technical efficiency (TE) in China. Design/methodology/approach: Based on the survey data of demonstrative family farms in Langxi county, Anhui province and Wuhan city, Hubei province in central China in 2017, this research assesses agricultural TE by using a three-stage DEA model. It adopts the tobit model to evaluate the effects of formal and informal financial access on TE, and to explore the heterogeneous effects by types, management states and scales. It uses the OLS regression and PSM method to check the robustness, and applies the IV-Tobit method to solve the endogeneity. The authors apply the mediation effect model to explore the channels through which financial access impacts TE. Findings: Family farms' average TE reaches 13.9%, which shows much room for improvement under the given technical conditions and constant inputs. The research confirms the advantage of formal financial access in raising TE relative to informal financial access. The heterogeneous analysis documents more prominent effects of formal financial access on enhancing TE of aquaculture, hybrid, demonstration and large farms. The mediating effect model reveals that the enhancing TE effect of formal financial access derives from improved machinery investment and family labor division rather than land circulation. Originality/value: The research clarifies finance into formal and informal finance. The results have considerable policy implications for rural financial policies in China.