Access to credit, factor allocation and farm productivity

Abstract

Purpose -The purpose of this paper is to analyse how farm production and input use (land, variable inputs, labour, and capital) is related to farm access to credit in the Central and Eastern Europe (CEE) transition countries. Design/methodology/approach -Drawing on a unique farm level panel data set with 37,409 observations and employing a matching estimator, this paper analyses how farm access to credit affects farm input allocation and farm efficiency in the CEE transition countries. The large size of the FADN data set has an additional advantage. It allows the authors to employ a semi-parametric estimator based on the propensity score matching. Using more than 37,409 observations assures that the loss in efficiency of semi-parametric estimates, as compared to parametric ones, is not a problem. This is important for at least two reasons. First, applying a semi-parametric propensity score matching (PSM) estimator allows to control for any heterogeneity in the relationship between farm performance and their observable characteristics (in particular access to credit). Second, matching estimators are robust in situations where farms having access to credit systematically differ from those that do not. Findings -It is found that farms are asymmetrically credit constrained between inputs. The use of variable inputs and capital investment increases up to 2.3 percent and 29 percent, respectively, per 1,000 EUR of additional credit. The authors' estimates suggest also that farm access to credit increases the total factor productivity up to 1.9 percent per 1,000 EUR of additional credit, indicating that an improved access to credit results in adjusting the relative input intensities on farms. This finding is further supported by a negative effect of better access to credit on labour, suggesting that these two are substitutes. Interestingly, farms are found not to be credit constrained with respect to land. Originality/value -To the best of the authors' knowledge, the present paper is the first to investigate the importance of access to credit for farm performance in the CEE region as a whole.

Policy rationing in rural credit markets

“…On the fundamental assumption of a relationship between access to credit and input demand Pederson et al (2012) provide such evidence for the USA showing that under a state funded loan program to address credit constraints for beginning and low-resource farmers a 1 percent increase in credit, increased gross income by 0.49 percent and investment in depreciable assets by 0.33 percent. Ciaian et al (2012) find for Central and Eastern European farmers the use of variable inputs increased by 2.3 percent and total factor productivity increased by 1.9 percent per e1,000 increase in credit. Weersink et al (1994) find evidence using US data that an increase in interest rates decreased the demand for variable inputs (labor 2 0.27 percent and crop expenses 2 0.03 percent) while increasing the demand for quasi-fixed inputs; also as the price of inputs increases so did the demand for short run credit.…”

The Constraints of Agricultural Credit and Government Policy Strategy

“…Pavel Ciaian et al (2012) examines the impact of credit constraints on agricultural behavior in CEE transition countries. Based on the theoretical model shows that with the existence of binding credit limits, increased access to credit can lead to increased productivity, agricultural output and input use.…”

“…Based on the theoretical model shows that with the existence of binding credit limits, increased access to credit can lead to increased productivity, agricultural output and input use. With symmetric credit constraints, the eradication of agricultural credit constraints increases the use of all inputs [3]. However, if asymmetrically limited, increased access to credit may result in restricted credit input substitution to provide unlimited input.…”

Impacto del crédito sobre el agro en Colombia : evidencia del nuevo Censo Nacional Agropecuario

“…Igualmente, Ciaian et al (2012) encuentran, para Europa Central, que el crédito incrementa el uso de insumos y la productividad en el agro. Para el caso colombiano, estudios pasados han realizado análisis del crédito de Finagro (Estrada et al, 2016).…”