The impact of financial deepening on agricultural production: A household-level analysis of BigTech finance

Abstract

The relationship between financial deepening and agricultural production remains ambiguous. Previous literature has demonstrated that financial depth can alleviate poverty among rural households by facilitating self-employment in non-agricultural sectors or migration to urban areas, but its impact on rural households engaged in the agriculture sector has not been discussed. This paper utilizes the usage of financial services provided by a leading BigTech company in China and household survey data to analyze how financial deepening affects rural households’ agricultural production. The findings demonstrate the efficacy of BigTech finance in augmenting agricultural income for rural households. Mechanism analysis reveals that this impact is only observed among financially constrained rural households or those affected by climate disasters, thereby facilitating an expansion in the agricultural production inputs and enhancing efficiency. Furthermore, the distributional analysis underscores that BigTech finance primarily benefits rural households with limited access to traditional financial services, suggesting its complementary role to traditional finance in bolstering agricultural production amidst financial deepening endeavors.