Credit constraints and labour allocation decisions in rural Burkina Faso

Abstract

PurposeCredit 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/approachThe 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.FindingsThe 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 implicationsFacilitating 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/valueIn 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.