Peasant Farming in Emerging Countries: Does Agricultural Financing Really Have an Impact?

Abstract

We find financing helps make up for deficiencies in farming experience and the absence of crop insurance, such that farmers that have less experience or do not have crop insurance are more likely to adopt productivity enhancing activities. We also find farmers are less likely to spend on output related items (additional farming acreage), as opposed to productivity enhancing items (such as hybrid seeds or fertilizers) as credit constraints become more severe. These findings provide evidence that financing increases farmers' willingness or ability to adopt productivity enhancing activities. Combined, our findings indicate the effectiveness of agricultural financing policies at achieving improvements in agricultural output and productivity can be enhanced by benchmarks of farmers' financing needs as functions of farmer characteristics such as land size, experience, or absence of crop insurance.