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Determinants of credit constraints for agricultural wholesalers in China

In: International Food and Agribusiness Management Review
Authors:
Lifang Hu Assistant Professor, Capital Finance Institute, China University of Political Science and Law, Beijing 100088, China P.R.

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Rigoberto A. Lopez Richard DelFavero Professor, Department of Agricultural and Resource Economics, University of Connecticut, Storrs, CT 06269, USA.

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Yinchu Zeng Professor and Department Head, School of Agricultural Economics and Rural Development, Renmin University of China, Beijing 100872, China P.R.

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Open Access

Following market reforms and economic growth since the late 1970s, agricultural wholesale markets in China have developed substantially and become increasingly important in food distribution. This paper investigates the determinants of credit constraints on agricultural wholesalers. A probit model with sample selection is estimated for credit constraints and demand using data collected via a nationwide survey of 1,422 agricultural wholesalers, of whom approximately 39% were designated as credit-constrained. Empirical results confirm that an absence of relatives in the business supports the notion of further discouraging potential borrowers from applying for credit in the first place. Moreover, the probability of being credit-constrained is significantly lower for legal corporations, wholesalers who have higher-value capital assets, larger-sized wholesalers, and those in a better micro-finance environment. Some policy implications are outlined.

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