Liquidity constraints, productivity, employment and output: evidence from non-agricultural activities in Bangladesh

Abstract

This paper examines the role played by liquidity constraints in determining non-agricultural employment, labour productivity and output among poor, landless households. The hypothesis that the provision of credit to poor non-agricultural households on reasonable terms can greatly enhance labour use, and output, thereby reducing poverty is empirically investigated using survey data from rural landless households in Bangladesh. The study's findings indicate that even small amounts of credit on reasonable terms can substantially enhance labour use and income for poor households and that the impact is greatest for the poorest households.