【Abstract】We explore the role of financial frictions in accounting for labor productivity differences across provinces in China using a quantitative sectoral model featuring non-homothetic preference, intermediate input and financial frictions. We explore household-level data and find financial frictions exist in rural area and are more severe in poorer regions. Limited credit in poor area depresses the use of intermediate inputs and hence encourages the use of labor inputs. Quantitatively, financial frictions alone explain more than 1/4 of the observed employment share and productivity differences. Moreover, financial frictions amplify the effect of TFP differences on agricultural productivity differences by 30 percent.
【Keywords】Rural financial frictions；agricultural productivity；agriculture；China.