The power of the visible hand's micro-intervention in agricultural credit: a policy analysis based on Sichuan Province's risk compensation fund system

This study investigates the effects of the Risk Compensation Fund System (RCFS), a government micro-intervention in agricultural credit, in Sichuan Province, China. Using the staggered difference-in-differences method as a benchmark model, we find that the RCFS increased the added value of the primary industry by 14%. Robustness tests using the Callaway and Sant'Anna (2021) Difference-in-Differences and Bacon decomposition confirm the validity of our hypothesis, suggesting that the RCFS can effectively promote agricultural development. Furthermore, we employ the Synthetic Difference-in-Differences method to estimate the policy's individual treatment effect. Heterogeneity analysis indicates that the RCFS can be successfully implemented even in areas with poor geographical conditions and low levels of economic development, highlighting its potential for policy expansion. However, our findings suggest that policies focusing solely on promoting competitive county-level banking or increasing agricultural leverage do not necessarily lead to optimal outcomes. Instead, policymakers should prioritize improving the efficiency of fiscal fund utilization and enhancing the policy implementation mechanism to optimize the benefits of the RCFS. Our study underscores the positive significance of targeted government intervention in promoting economic development in developing countries and emphasizes the importance of well-designed micro-mechanisms in ensuring policy success.