How Financial Literacy Affects Farmers’ Entrepreneurship: An Analysis Based on Credit Constraints

Using data from the China Land Economic Survey (CLES), this paper examines the impact of financial literacy on farmers’ entrepreneurship, explores the transmission mechanisms involved, and conducts a heterogeneity analysis. The study finds that financial literacy promotes farmers’ entrepreneurship. The mechanism analysis found that financial literacy reduced farmers’ informal and traditional credit constraints, increased the availability of entrepreneurial funds, and promoted farmers’ entrepreneurship; financial literacy enhanced the use of social capital, and the role of “role models” of friends and relatives in entrepreneurship enhanced farmers’ entrepreneurial motivation. Heterogeneity analysis reveals that among agricultural and non-farm entrepreneurship decisions, although financial literacy reduces farmers’ digital credit constraints, traditional credit is still the main credit option for entrepreneurs; the effect of financial literacy enhancement on entrepreneurship is more pronounced for farmers with low and medium education levels. This paper explores the transmission mechanism of financial literacy on entrepreneurial decisions in terms of credit constraints and social capital, which is a refinement and complement to the existing studies on farmers’ entrepreneurship.