Have Public Finance Policies Induced Financial Institutions to Support Agricultural Development？ An Evaluation of the Effects of the Reward Policy On Incremental Agricultural Loans in China
XING Weibo, ZHANG Simin
School of International Trade and Economics, University of International Business and Economics
Summary:
Every year, the issue of “agriculture, countryside, and farmers” is noted as a priority in the Chinese Central Government's Policy Document No. 1. Agriculture in China is currently in a critical transition period. The mode of agricultural production is shifting from labor-intensive to a mode that is both capital-and technology-intensive, which means that funds must be efficiently invested to promote agricultural development. However, there has been a widespread lack of funding in rural areas, and asymmetrical access to information and the failure of rural financial markets are also serious problems. Agricultural loans, including agricultural credits, are the main policy tools for poverty alleviation in rural areas. Over the years, the central government has promulgated a large number of fiscal and financial policies to support rural loans and the agricultural economy. Recently, a series of government decisions indicate that China is trying to use fiscal policies to guide the allocation of financial resources to rural areas. To encourage financial institutions to increase agricultural loans, the Ministry of Finance has since 2009 overseen a pilot reward policy for institutions making incremental agricultural loans. It is an important measure to integrate fiscal policy and financial policy. Drawing on theories of rural finance and agricultural economic growth, this study assesses the impacts of the Reward Policy for Incremental Agricultural Loans on agricultural economic development in China. In addition, this study explores the mechanism through which the policy affects agricultural economic development. As 25 provinces successively entered the reward policy pilot program over the 2009 to 2014 period, this study establishes a time-varying difference-in-differences model to evaluate the effect of this exogenous incentive policy on the development of the local agricultural economy. The model uses relevant agricultural economic data from 31 provinces from the 2006 to 2018 period as the research sample. First, we construct an empirical model that uses grain output and farmers' income as the explanatory variables, and policy interaction terms as the core explanatory variables. Then we add control variables such as climatic conditions, input factors, fiscal expenditure on agriculture, local financial development, and agricultural industrialization. Second, to ensure the reliability of the empirical results, we conduct a robustness test. Third, to assess whether the incentive policy has heterogeneous impacts across provinces, we add the interaction terms of geographic location and policy variables to the model and then conduct a heterogeneity test. Finally, we identify the channels through which the incentive policy affects the agricultural economy by examining the impacts of the policy on the agricultural loan balance, power of agricultural machinery, fixed assets investment of rural households, transportation, and water conservation infrastructure construction. The data are from the China Statistical Yearbooks, Wind database, and CSMAR database. The empirical results show that the Reward Policy for Incremental Agricultural Loans has significantly promoted the growth of grain output and farmers' income. This conclusion remains valid in the robustness tests. Furthermore, the impacts of the policy on the agricultural economy of provinces in different geographical locations is obviously heterogeneous, i.e., the central and western provinces have been more affected. This may be due to the lower proportion of primary industry and relatively mature financial market in the eastern region. Finally, the analyses of the mechanisms show that the policy mainly promotes local agricultural economies by promoting local agricultural loans, which in turn improve the level of agricultural mechanization and optimize rural infrastructure in areas such as transportation and water conservation. Based on the empirical evidence, we put forward the following policy recommendations. At present, we should continue to encourage financial institutions to support agriculture. The coordination and cooperation of fiscal policies and monetary policy tools achieves a win-win situation for financial institutions and farmers. Differentiated fiscal policies (including targeted fee subsidies and tax incentives for loans) could also be used to encourage financial institutions to focus on the countryside and increase agricultural investment.
行伟波, 张思敏. 财政政策引导金融机构支农有效吗?——涉农贷款增量奖励政策的效果评价[J]. 金融研究, 2021, 491(5): 1-19.
XING Weibo, ZHANG Simin. Have Public Finance Policies Induced Financial Institutions to Support Agricultural Development？ An Evaluation of the Effects of the Reward Policy On Incremental Agricultural Loans in China. Journal of Financial Research, 2021, 491(5): 1-19.
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