Technology or institutions: which is more effective at driving smallholders in China to reduce their use of chemical fertilizers?

Purpose This study aims to clarify the contributions of technological progress and institutional innovation in reducing fertilizer use among Chinese farmers and their interaction effects, offering strategic insights for fertilizer management. Design/methodology/approach Using provincial-level panel data from 2002–2021, this study constructs a transition probability model of farmers’ fertilization behavior. It employs high-dimensional fixed effects, threshold regression models, and instrumental variable approaches to address endogeneity, analyzing the impact and interaction of technological progress and institutional innovation while considering stage differences, subsidy types, and regional disparities. Findings Both technological progress and institutional innovation have driven reductions in fertilizer use. The interaction between these two factors has shifted from an alternative effect to a synergistic one, with institutional innovation leading. Short-term policies should prioritize production tools subsidies and fertilization structure adjustments, whereas long-term policies should focus on soil improvement subsidies and organic fertilizer subsidies. Additionally, policies should better align subsidies with constraints. Heterogeneity analysis reveals that institutional innovation has a greater impact in the Yangtze River Economic Belt and Main Grain Producing Areas, while technological progress is more influential in non-YREB and non-MGPAs. A one-period lag in institutional innovation effects is also observed. Originality/value This study integrates technological and institutional factors into a unified analytical framework. It scientifically assesses their comparative environmental benefits and reveals the dynamic evolution from substitution to synergy.