Does Use Of Credit Improve Welfare Outcomes Of Households’? The Empirical Case Study In Ethiopia

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Addis Ababa University


At this time financing is one of the most powerful tools for fighting poverty primarily by providing loan to the poor section of the society. The number of formal and informal financial institutions serving the poor in Ethiopia has grown with in short period of time .The constant growth in the sector has created a competition for scarce financing among institutions. Hence, recent years have seen a growing push to investigate the demand of finance and the access of credit especially for the rural households. In light of this, the study analyzed and investigated the determinants of credit and the impact of credit use on the improvements of welfare outcomes in Ethiopia. Probit model was adopted for the selection model and Linear Regression was used from the selection model to calculate the total and average food consumption and total expenditures of households. Results are based on data from the secondary sources and a sample of 2676 households. Descriptive statistics and Endogenous Switching Regression estimation were used for the outcome equation to estimate the impact of credit on households’ welfare. The analysis revealed that access to extension service, total livestock holding, availability of family labor force, participating in Non-farm Enterprises, and gender of the household head are important determinants for taking credit. The analysis further revealed that access to credit has positively and significantly associated with the improvements of households’ welfare outcomes. Finally, based on both descriptive and econometric results, improving rural farm households’ access to extension service, sizing Non-farm Enterprises and livestock sector, are likely to improve welfare outcomes like food consumption and total per capita annual consumption.



Endogenous Switching Regression Model, Non-user, Food Expenditure, Total consumption; Ethiopia