Credit Constraint and Non-separable Behavior of Rural Households — Evidence from China

This article addresses the separability issue in the context of Chinese rural households. Deviating from previous research, our test on separability is embedded in the capital market imperfections and from the perspective of farm living consumption and their production inputs. Our theoretical framework incorporates the credit constraint and predicts both separability and non-separability behavior from rural households. Empirical estimation presents the evidence of non-separability behavior for credit constrained farm families, while independent decisions on farm living consumption and their production inputs exist among unconstrained households. Our overall results reject the separability for financially constraint farm households in China.