Does climate risk affect the ease of access to credit for farmers? Evidence from CHFS
Bei Liu, Baoping Ren, Fei Jin
Abstract
Research on the impact of climate change on agricultural production and farmers' income receive significant attention, but there is little literature focusing on how climate change affects the financial activities of farmers. This paper utilizes data from the China Household Finance Survey (CHFS) and the China Ground Climate Data Daily Dataset to examine the influence of climate change on farmers' credit constraints and the mechanisms driving these effects. The findings reveal that climate change considerably reduces agricultural production efficiency and increases property damage, which in turn diminishes farmers' ability to repay debts and their willingness to take out loans. This heightened default risk ultimately leads to greater credit constraints. Agricultural insurance, serving as a risk management tool, can effectively mitigate the risks associated with agricultural production and management, lessen disaster-induced losses, and thereby reduce the adverse effects of climate change on credit constraints. Additional analysis of heterogeneity suggests that the impact of climate change on credit constraints is more pronounced for farmers who are less informed about financial matters and those in regions with higher levels of marketization. This research offers both theoretical insights and practical strategies for addressing and alleviating the negative impacts of climate change on farmers' credit activities.