Private Investment and the Demand for Loanable Funds in the Greek Agricultural Sector

Abstract

The ready availability of credit on easy terms has proved to be instrumental in stimulating agricultural investments until the 1970s. After that period, there was a marked slow-down in investment activity, a trend that characterized the entire Greek economy. This is primarily due to the fact that since then credit had been increasingly tight. The aim of this article was to quantify Greek farmers’ investment behavior both at the aggregate level and by broad type of investment and, also to quantify their demand for loans to finance this investment. Thus, a simultaneous equations econometric model was used to describe the demand for credit and investment by Greek farmers. In particular, credit needs for agricultural investment were estimated using a combination of a partial adjustment model and the adaptive expectations model. Farmers’ investment behavior was examined by employing a synthesized traditional model for aggregate and three types of investment. The rational expectations model was alternatively used. The traditional model was estimated by the 2SLS method and the rational expectations model by the generalized method of moments. Then, the empirical results derived from the rational expectations model were compared with those obtained from the application of the traditional model. Finally, the main findings were summarized and some policy implications were drawn.