Resource information
This paper uses Ethiopian data to
explore credit rationing in semi-formal credit markets and
its effects on farmers' resource allocation and crop
productivity. Credit rationing -- both voluntarily and
involuntarily -- is found to be widespread in the sampled
rural villages, largely because of risk-related factors.
Political and social networks emerge as key determinants of
access to credit among smallholder, peasant farmers.
Significant regional variation emerges as well. In
high-potential, surplus producing areas where credit is
largely used for agricultural production, eliminating credit
constraints is estimated to increase productivity by roughly
11 percentage points. By contrast, in low-productivity,
drought prone areas where loans were rarely used to acquire
inputs for crop production, the authors find no relationship
between credit rationing and agricultural productivity. To
be effective, efforts to improve agricultural productivity
not only need to increase credit supply, but also explore
the reasons for credit rationing and the availability of
productive opportunities.
