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Article
Publication date: 17 April 2020

Haruna Issahaku, Ishaque Mahama and Reginald Addy–Morton

The purpose of this study is to assess the impact of credit constraints on agricultural labour productivity as well as the impact of credit constraints and agricultural…

Abstract

Purpose

The purpose of this study is to assess the impact of credit constraints on agricultural labour productivity as well as the impact of credit constraints and agricultural labour productivity on rural households' consumption in Ghana.

Design/methodology/approach

This study uses the Ghana Living Standard Survey round six (GLSS 6) as the main source of data, which happens to be one of the most comprehensive household datasets in Ghana. Quantitative estimation techniques (namely: Endogenous Switching Regression and Two Stage Least Squares) are used to address possible endogeneity and selection into credit markets.

Findings

First, large households are prone to credit constraints while age (experience) and compliance with extension advice reduce credit constraints. Second, the determinants of agricultural labour productivity for both constrained and unconstrained households are age, sex, farm equipment, herbicide and farm size. Third, household size, education and livestock rearing influence agricultural labour productivity of constrained households. Fourth, credit constraints, irrespective of how they are measured, impede agricultural labour productivity while access to credit fosters labour productivity. Lastly, credit constraints robustly reduce consumption while agricultural labour productivity strongly enhances rural households' consumption.

Originality/value

The first contribution is that, unlike most previous studies, we do not focus on the widely used measure of productivity – output per unit land, but on agriculture labour productivity in particular. Secondly, unlike most previous studies which examine the effect of credit constraints either on productivity alone or consumption alone, our study examines the impact of credit constraints on both. Thirdly, unlike the existing literature which uses one or two measures of credit constraints, we use a wide range of measures of credit constraints – seven different measures of credit constraints. Lastly, our empirical strategy solves at least two critical econometric problems – sample selection bias and endogeneity.

Details

African Journal of Economic and Management Studies, vol. 11 no. 2
Type: Research Article
ISSN: 2040-0705

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Article
Publication date: 3 July 2017

Mohamed Porgo, John K.M. Kuwornu, Pam Zahonogo, John Baptist D. Jatoe and Irene S. Egyir

Credit is central in labour allocation decisions in smallholder agriculture in developing countries. The purpose of this paper is to analyse the effect of credit

Abstract

Purpose

Credit is central in labour allocation decisions in smallholder agriculture in developing countries. The purpose of this paper is to analyse the effect of credit constraints on farm households’ labour allocation decisions in rural Burkina Faso.

Design/methodology/approach

The study used a direct elicitation approach of credit constraints and applied a farm household model to categorize households into four labour market participation regimes. A joint estimation of both the multinomial logit model and probit model was applied on survey data from Burkina Faso to assess the effect of credit constraint on the probability of choosing one of the four alternatives.

Findings

The results of the probit model showed that households’ endowment of livestock, access to news, and membership to an farmer-based organization were factors lowering the probability of being credit constrained in rural Burkina Faso. The multinomial logit model results showed that credit constraints negatively influenced the likelihood of a farm household to use hired labour in agricultural production and perhaps more importantly it induces farm households to hire out labour off farm. The results also showed that the other components of household characteristics and farm attributes are important factors determining the relative probability of selecting a particular labour market participation regime.

Social implications

Facilitating access to credit in rural Burkina Faso can encourage farm households to use hired labour in agricultural production and thereby positively impacting farm productivity and relieving unemployment pressures.

Originality/value

In order to identify the effect of credit constraints on farm households’ labour decisions, this study examined farm households’ decisions of hiring on-farm labour, supplying labour off-farm or simultaneously hiring on-farm labour and supplying family labour off-farm under credit constraints using the direct elicitation approach of credit constraints. To the best of the authors’ knowledge, this study is the first to examine this problem in Burkina Faso.

Details

Agricultural Finance Review, vol. 77 no. 2
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 28 October 2014

Jianmei Zhao and Peter J. Barry

– The purpose of this paper is to evaluate the effects of access to formal credit on rural household technical efficiency in China.

Abstract

Purpose

The purpose of this paper is to evaluate the effects of access to formal credit on rural household technical efficiency in China.

Design/methodology/approach

Based on the rural household survey data in Weifang city, Shandong province in northern China, the authors apply recent developed bootstrapped DEA approach to investigate rural technical efficiency at the household level under the consideration of off-farm activities. Rural households are then identified as credit constrained and classified as supply-side and demand-side credit constraints by applying direct elicitation method. Finally, the authors apply a tobit regression to examine the effects of credit constraints on household technical efficiency.

Findings

Rural households in China not only suffer supply-side credit constraints, but also demand-side credit constraints resulted from the transaction costs and risk rationing. The tobit regression discloses that demand-side credit constraints impose significant negative impacts on household technical efficiency.

Originality/value

The authors clarify the definition of credit constraints and classify the credit constraints into supply-side and demand-side credit constraints. The results of this paper have significant policy implications for rural finance policies in China.

Details

China Agricultural Economic Review, vol. 6 no. 4
Type: Research Article
ISSN: 1756-137X

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Article
Publication date: 6 November 2017

Samuel Sekyi, Benjamin Musah Abu and Paul Kwame Nkegbe

The purpose of this paper is to examine farmers’ access to credit, credit constraint, and productivity in the Northern Savannah ecological zone of Ghana.

Abstract

Purpose

The purpose of this paper is to examine farmers’ access to credit, credit constraint, and productivity in the Northern Savannah ecological zone of Ghana.

Design/methodology/approach

Secondary data from the Ghana Feed the Future baseline survey involving a total sample of 2,968 farm households were used. The conditional mixed process (CMP) framework was applied to estimate access to credit, credit constraint, and productivity simultaneously. As a system estimator the CMP corrects for possible heterogeneity and sample selection bias.

Findings

The results from the estimations revealed that age, literacy, farm non-mechanized equipment, and group membership were the variables influencing farmers’ access to credit. Credit constraint conditions were determined by household size, locality, group membership, and household durable assets. Finally, the results showed that productivity of farmers was dependent on marital status, household size, locality, farm size, commercialization, farm mechanized equipment, group membership, and household durable assets.

Originality/value

This paper is the first, to the best of the authors’ knowledge, to use the CMP framework to jointly estimate access to credit, credit constraint, and productivity. The results indicate that estimating credit access and constraint models separately would have yielded biased estimates. Thus, this paper informs future research on farmers’ credit access, credit constraint, and productivity for informed policymaking.

Details

Agricultural Finance Review, vol. 77 no. 4
Type: Research Article
ISSN: 0002-1466

Keywords

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Article
Publication date: 8 August 2016

Minh Chau Tran, Christopher E.C. Gan and Baiding Hu

– The purpose of this paper is to identify factors affecting formal credit constraint status of rural farm households in Vietnam’s North Central Coast (NCC) region.

Abstract

Purpose

The purpose of this paper is to identify factors affecting formal credit constraint status of rural farm households in Vietnam’s North Central Coast (NCC) region.

Design/methodology/approach

Using the direct elicitation method (DEM), the authors consider both internal and external credit rationing.

Findings

Empirical evidences confirm the importance of household head’s age, gender and education to household’s likelihood of being credit constrained. In addition, households who have advantages in farm land size, labour resources and non-farm income are less likely to be credit constrained. Poor households are observed to remain restricted by formal credit institutions. Results from the endogenous switching regression model suggest that credit constraints negatively impact household’s consumption per capita and informal credit can act as a substitute to mitigate the negative influence of formal credit constraints.

Research limitations/implications

One limitation arises from the usage of the DEM to identify credit constrained households. The method cannot detect effective and ineffective constraints. Another limitation is the inability of cross-section data to capture long-term impacts of credit constraints on household welfare. Finally, causes of credit constraints from the lender’s view cannot be observed.

Practical implications

The results suggest that it is necessary to enhance the credit allocation regime to reduce the transaction cost and provide target households with sufficient credit. It should be emphasized that high transaction cost and the mismatch between credit demand and supply stemming from information asymmetry. The government can help formal financial institutions to reduce information cost by encouraging the active role of social organizations such as Women Unions, Youth Unions and Veteran Unions in bridging rural farm households with formal lenders.

Originality/value

There are limited studies focusing on determinants of credit constraints and their impacts on rural farm households. To the best of the knowledge, there is no study evaluating the impact of credit constraints on rural farm household welfare particularly in Vietnam. In addition, the studies related to credit constraints only considered full quantity rationing (households applied for the loan but were rejected), omitting the case of partly quantity rationing (loan obtained by the borrowers is less than their demand) and self-rationing.

Details

International Journal of Social Economics, vol. 43 no. 8
Type: Research Article
ISSN: 0306-8293

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Article
Publication date: 25 June 2020

Lan Archer, Parmendra Sharma and Jen-Je Su

A review of literature has documented that accessing formal credit and other banking services has always been a crucial challenge for small and medium-sized enterprises…

Abstract

Purpose

A review of literature has documented that accessing formal credit and other banking services has always been a crucial challenge for small and medium-sized enterprises (SMEs). The alternative, therefore, tends to be informal channels. However, the credit constraint vis-à-vis informal channel link does not appear to be well documented in the literature. This study aims to investigate whether credit constraints significantly affect the probability of accessing informal credit, as well as the credit values of Vietnamese SMEs.

Design/methodology/approach

This study uses a trinary approach and correlated random-effects Probit and Tobit techniques to avoid the incidental coefficients problem.

Findings

The results suggest that relative to unconstrained and partially constrained firms, fully constrained firms tend to be more active in the informal credit markets, shown by their higher probability of informal credit access and larger credit values.

Originality/value

To the best of authors’ knowledge, this is the first study on Vietnam that takes a different approach to credit constraints and examines their impact on informal credit access. Policy implications arise and are discussed.

Peer review

The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-11-2017-0543

Details

International Journal of Social Economics, vol. 47 no. 6
Type: Research Article
ISSN: 0306-8293

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Article
Publication date: 2 November 2012

Fengxia Dong, Jing Lu and Allen M. Featherstone

The purpose of this paper is to examine the effect of credit constraints on agricultural productivity in China.

Abstract

Purpose

The purpose of this paper is to examine the effect of credit constraints on agricultural productivity in China.

Design/methodology/approach

Using data from a rural financial survey, a switching regression model is used to account for endogeneity and heterogeneity. Carter presents three ways that credit might affect the production functions; a shift along a given production surface by allowing an optimal level of inputs, a shift the production surface out by allowing the purchase of more efficient inputs, and the third is to increase net revenue by more intensive use of fixed inputs and resources. Thus, the effects of factors on agricultural productivity may not be independent of credit status; therefore, separate functions for credit‐constrained and non‐constrained households are examined.

Findings

Empirical estimates of the impacts of credit constraints on agricultural productivity are provided for the Heilongjiang province, a major agricultural production area, in Northeast China. By removing credit constraints, average agricultural productivity was estimated to be increased by 75 percent. Under credit constraints, labor inputs, along with a farmers' education, cannot be fully employed because of an inappropriate mix of inputs.

Research limitations/implications

Young farmers may not be able to leverage their comparative advantage for physically intensive farm work under credit constraints. Because of data limitations, the research does not include information on informal credit in the estimation, which may underestimate the effects of credit constraints.

Originality/value

This study provides an analysis of the impacts of credit constraints on rural household productivity for the Heilongjiang province, a major agricultural production region, in Northeast China.

Details

Agricultural Finance Review, vol. 72 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

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Article
Publication date: 4 May 2012

Pavel Ciaian, Jan Fałkowski and d'Artis Kancs

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…

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.

Details

Agricultural Finance Review, vol. 72 no. 1
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 19 August 2020

Igbekele Sunday Osinubi

Existing studies that documented the effect of financial distress on trade credit provisions did not include measures financial constraint. It is possible that financial…

Abstract

Purpose

Existing studies that documented the effect of financial distress on trade credit provisions did not include measures financial constraint. It is possible that financial distress is tie to financial constraints, and both financial distress and financial constraints mutually reinforce each other in their effects on trade credit provision. The purpose of this study is to evaluate the effects of financial constraint and financial distress on trade credit provisions in the UK FTSE 350 listed firms.

Design/methodology/approach

This study employs panel data in the estimation of the determinants of accounts payables and accounts receivables of the UK FTSE 350 firms from 2009 to 2017.

Findings

This study finds that financial distress has significant positive effect on accounts payables and a significant negative effect on accounts receivables. Financial constraints have significant negative effect on accounts payables and a significant positive effect on accounts receivables.

Practical implications

Trade creditor desiring to maintain an enduring product-market relationship grant more concessions to customer in financial distress. The amount of trade credit that sellers provide to financially constrained firm is an increasing function of the buyer's creditworthiness. The urgent cash needs of financially distressed firms lead them to sell trade receivables to factoring company leading to reduction in trade receivables. Firm facing external financing constraints increase trade credit to customers in anticipation of cash flow inflow to enhance liquidity.

Originality/value

This study shows that financial distress and financial constraints mutually reinforce each other in their effects on trade credit provisions, and firm's financing condition contributes to divergence in trade credit policies.

Details

Asian Review of Accounting, vol. 28 no. 4
Type: Research Article
ISSN: 1321-7348

Keywords

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Article
Publication date: 4 May 2012

Glenn Pederson, Wonho Chung and Roelof Nel

The purpose of this paper is to determine if there are positive microeconomic effects from a state‐funded loan participation program on farm productivity and investment behavior.

Abstract

Purpose

The purpose of this paper is to determine if there are positive microeconomic effects from a state‐funded loan participation program on farm productivity and investment behavior.

Design/methodology/approach

The authors take the approach that access to credit solves a liquidity problem. If a credit constraint exists it results in a suboptimal allocation of resources and a reduction in farm output and profitability. A two‐stage regression model approach is used to analyze farmer survey and loan application data. In the first stage, a probit regression model is used to identify the farmers who are likely to be credit rationed. In the second stage, switching regression models are used to observe the effect of credit rationing on farm productivity and on farm investment behavior.

Findings

It is found that there are liquidity effects of credit constraints for a significant share of the beginning and low‐resource farmers who participated in the state‐funded farm loan program. After controlling for various farm and farmer characteristics, the estimated productivity and investment demand equations imply that a 1 percent increase in credit received by credit constrained farmers under the state program increased their gross income by about 0.49 percent, and their investments in depreciable assets by about 0.33 percent.

Originality/value

This paper is the first to apply the switching regression model to a state‐funded farm loan program for the purpose of evaluating the financial impacts on farmer participants.

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