Estimating the Demand for Farm Credit in the Republican Era
Little is actually known about the factors that affected the demand and supply of agricultural credit during the Republican era, largely because data collection was rare and modern econometric techniques and the computing power necessary were simply not available. The most complete assessment was reported in John Lossing Buck’s Land Utilization in China. The important questions for economists and specialists in agricultural finance revolve around how much was borrowed, for what reasons, and at what interest rates. Answers to these are partially furnished by Buck, but not in a form that is economically meaningful. In this chapter we put Buck’s recovered data to the econometric test. The objective is to recover as best as possible the economic relationship between credit demand and interest rates, by specifying two endogenous equations for credit supply and credit demand. We consider interest rates, agricultural productivity, and special farm expenditure such as weddings and funerals as drivers of demand, and loan amount, productivity, crop yield risk, and source of credit as drivers of supply. Productivity is linked to credit amount and interest rates as well as farm size, productive and market animals, hired labor, and so on as productivity factors.