Labor Reallocation as a Mediating Channel: Farmland Transfer and Household Financial Vulnerability in Rural China

The reallocation of production factors, particularly labor, is central to understanding economic development and household welfare. This paper investigates how the transfer of farmland, a fundamental shift in factor endowment, affects rural household financial vulnerability, with a specific focus on the mediating role of labor mobility. While factor market liberalization is theorized to enhance efficiency, the micro-level pathways through which land transactions influence financial resilience remain underexplored. Utilizing a unique household survey dataset from Shaanxi Province, China, and employing ordered Probit model alongside propensity score matching (PSM), the impact of farmland transfer-out on the financial vulnerability of rural households is revealed. The results show that farmland transfer-out significantly reduces household financial vulnerability. Mechanism analysis confirms that this effect operates primarily by releasing surplus agricultural labor and promoting its shift into non-farm employment, thereby expanding both the sectoral and geographic scope of household labor supply. Heterogeneity analysis further reveals that the responsiveness of labor mobility to land transfer is more pronounced among households with older heads, higher human capital, and stronger social networks. However, the ultimate mitigating effect on financial vulnerability is consistent across diverse household types. These findings contribute to the literature on factor market integration and household finance in developing economies and offer direct policy implications for designing land institutions and labor policies that synergistically enhance rural economic resilience.