Access to Credit and the Impact of Credit constraints on Agricultural Productivity in Ethiopia: Evidence from Selected Zones of Rural Amhara
No Thumbnail Available
Date
2015-02
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Addis Ababa University
Abstract
The economy of Ethiopia is characterized by its reliance on subsistence agriculture and the existence of underdeveloped financial institutions, especially in rural areas. In the literature, the role of credit as an instrument to boost productivity and welfare has long been justified. The main goal of this paper is to show the agricultural credit access landscape and investigate the impact of credit constraints on agricultural productivity in Ethiopia by using a household survey data from rural Amhara collected in 2013. After adjustments throughout the data cleaning process, the study relied on a survey of 1082 households which are found with valid information for all the variables considered in study.
The study revealed that 66.17 percent of households are credit constrained which shows how the rural credit market landscape in Ethiopia is highly imperfect. By using an endogenous switching regression model, the study tried to show the effect of demographic and other socioeconomic variables on credit constraint status of households and simultaneously the impact of credit constraints on agricultural productivity. Finally, the paper uncovered the existence of a huge productivity loss due to various types of credit constraints. The cumulative impact is estimated to be 17.94 percent, i.e. an additional per hectare income of 1410.17 Ethiopian birr productivity gain if all types of credit constraints happen to be eliminated. This calls for a well-coordinated policy intervention compatible with the dynamics of rural institutions and other location bottlenecks.
Description
Keywords
Access to Credit