The development of new rural financial institutions and agricultural total factor productivity

Purpose Since China implemented rural financial incremental reform, various new rural financial institutions (NRFIs) have achieved rapid development. By discussing the impact of NRFI development on agricultural total factor productivity (ATFP), its mechanisms, and its heterogeneous effects, this study provides strategies and suggestions for deepening rural financial system reform and promoting high-quality agricultural development. Design/methodology/approach This study constructed a panel dataset for 1,363 counties in China from 2000 to 2021, utilised the Malmquist index based on the DEA model to measure agricultural total factor productivity in Chinese counties, and empirically investigated the impact of the development of NRFIs on ATFP using a two-way fixed effects model. To address potential endogeneity concerns, instrumental variables were selected and a two-stage least squares regression was employed. Findings The development of NRFIs can improve ATFP. From the decomposition of ATFP, the development of NRFIs has a significant positive impact on agricultural technological progress and technical efficiency. The development of NRFIs has different impacts on ATFP depending on institution type, economic region and natural conditions. Mechanism tests indicated that NRFI development primarily enhanced ATFP by promoting agricultural technological innovation, facilitating the adoption of agricultural technologies and accelerating land-scale management. Social implications ATFP improvement is the core driving force behind the development of modern agriculture, and the advancement of rural finance plays a significant role in enhancing ATFP. Most developing countries face insufficient competition in rural financial markets and constraints on rural credit. The findings indicated that developing countries need to deepen their rural financial system reform, relax entry barriers to rural financial markets and encourage the development of various types of rural financial institutions. Equally important are necessary regulations and support for NRFIs to enter rural financial markets. Originality/value There is a lack of nationwide quantitative assessments of whether the rural financial incremental reform represented by NRFIs has achieved the goal of supporting agriculture. This study estimated the impact of NRFI development on ATFP by examining the potential mechanisms and heterogeneous effects. It tested the applicability of the theory of imperfect competition in rural finance markets in the Chinese context, thereby enriching the literature. Furthermore, this study provides valuable insights for developing countries to deepen their rural financial reforms and promote high-quality agricultural development.