Effect Of Credit Constraints Research Articles

Effect of credit constraint on yield: the case of ginger producers in southern and central Ethiopia

Effect of credit constraint on yield: the case of ginger producers in southern and central Ethiopia

Demand and supply constraints of credit in smallholder farming: Evidence from Ethiopia and Tanzania

Credit constraint is often considered as one of the key barriers to the adoption of modern agricultural technologies and low agricultural productivity in low- and middle-income countries. Past research and much of the policy discourse associate agricultural credit constraints with supply-side factors, such as limited access to credit sources or high costs of borrowing. However, demand-side factors, such as risk-aversion and financial illiteracy among borrowers could also affect credit-rationing of smallholder agricultural households. This study investigates the nature of credit constraints, factors affecting credit constraint status, and the effects of credit constraints on adoption and intensity of use of three modern agricultural technologies – small-scale irrigation, chemical fertilizer, and improved seeds. The paper also assesses whether credit constraints are gender-differentiated. Primary survey data were collected from sample farmers in Ethiopia and Tanzania, and Tobit and two-step hurdle econometric models were used to analyze these data. Results show that demand-side credit constraints are as important as supply-side factors in conditioning smallholders’ access to credit in both countries. We also find that credit is a binding constraint for the decision to adopt technologies and input use intensity in Tanzania but not statistically significant in Ethiopia. Results suggest that women are more likely to be credit constrained (from both the supply and demand sides) than men in both study countries. Based on these findings, we suggest that policies should focus on addressing both supply- and demand-side credit constraints to credit access, including through targeted interventions to reduce risk, such as crop insurance, and to strengthen the gender sensitivity of credit policies.

The effect of credit constraints on innovation activities during different economic conditions: firm-level evidence from Turkey

This paper assesses to answer the question 'In the periods of during and after the recession, do the credit constraints affect the product innovation and R&D activity of manufacturing firms? ' Taking into consideration that Turkey is a developing country, the financing opportunity for innovative firms are narrower than the developed countries. This paper uses five waves of Business Environment and Enterprise Performance Survey (BEEPS) data between 2005 and 2019 on manufacturing firms and analyses by using an extended probit model with endogenous treatment. Results show that there is an endogenous effect between innovative activities and financial barriers. Additionally, findings support the hypothesis that the probability of being innovatively active is lowered about 40% by the effect of credit constraints. Most importantly, this paper has evidence that the effect of credit constraints differentiates during different economic conditions. To sum up, the pre-recession period is more affected than the post-recession period.

Agricultural credit constraints in smallholder farming in developing countries: Evidence from Nigeria

The agricultural sector in developing countries like Nigeria is characterized by low productivity, driven partly by low use of modern agricultural technologies. Poor access to credit is seen as a key barrier to adoption of these technologies. Policy discourses and literature often associate credit constraints by smallholders with supply-side factors such as inadequate access to sources of rural finance or high costs of borrowing. However, demand-side factors, such as smallholders’ risk-averse behavior, high transaction costs and information asymmetry predominate in rural areas of developing countries equally play important roles in the functioning of rural credit market. Using a nationally representative LSMS-ISA data from 5000 smallholders in Nigeria and seemingly unrelated econometric models, we examine the nature of rural credit, the factors affecting rural credit, and the effects of credit constraints on adoption of four agricultural technologies – inorganic fertilizer, improved seed, agrochemicals, and mechanization. Contrary to policy discourses focusing on supply-side factors of rural credit, we found that demand-side factors are equally important for improving access and utilization of rural credit. On the supply side, inadequate collateral is the key constraint; hence supply-side policies should focus on enhancing smallholders’ capacity to possess bankable collateral, such as land title or assets. On the demand-side, interventions such as crop insurance, information access and extension services are needed to increase credit access, technology adoption, and smallholder's agricultural productivity.

The Effect of Credit Constraints on Innovation Activities during Different Economic Conditions: Firm-Level Evidence from Turkey

The Effect of Credit Constraints on Innovation Activities during Different Economic Conditions: Firm-Level Evidence from Turkey

Capital and credit constraints in the engagement of youth in Ghanaian agriculture

PurposeThe purpose of this paper is to determine the factors influencing rural youth farmers’ credit constraints status and the effect of credit constraint on the intensity of participation of these farmers in Ghana.Design/methodology/approachThe econometric estimation is based on cross-sectional data collected in 2018 from the Brong Ahafo region in Ghana. The sample data set consists of 450 rural youth farmers. The collected data were analyzed through different econometric techniques, using the endogenous switching regression model (ERSM).FindingsThe direct elicitation approach employed in this study revealed that out of the 450 farmers, 211 (47 percent) of the respondents were credit constrained compared to 239 (53 percent) of their counterparts who were unconstrained. The ERSM indicated that youth farmers education, age, savings, parents occupation reduced the probability of the rural youth farmer to be credit constrained but cumbersome loan application procedure and loan disbursement time positively affect credit constraint. Moreover, farmers that are credit constrained have lower intensity of participation in agriculture activities than a random farmer from the sample. This suggests that access to credit has a positive impact on the intensity of participation in agriculture activities.Research limitations/implicationsIn this study, only rural youth farmers in a particular region were considered. However, there are youths all over the nation. Therefore, future researchers could consider other youth’s farmers elsewhere in the country.Originality/valueAlthough existing studies have examined rural youth farmers’ participation in agriculture and credit constraint separately, the unique contribution of this paper is the analysis of credit constraint of rural youth farmers as well as the impact of credit constraint on the intensity of participation in agriculture activities.

Effect Of Credit Constraints On Intensity Of Fertilzer Adoption And Agriclutural Productivity In Amhara Region, Ethiopia: An Endogenous Switching Regression Analysis

Access to finance to the rural households is a powerful intervention to facilitate the adoption of farm inputs and boost agricultural productivity in developing countries like Ethiopia. Credit constraints limit the ability of households to use inputs at optimal level and thereby stifles agricultural productivity. However, evaluation of the impact of credit constraints on agricultural technology adoption and productivity have faced methodological problems and most of the existing studies have failed to explicitly measure and analyze the amount of productivity loss and the magnitude increase in intensity of fertilizer adoption if the farm households are found credit unconstrained. This study has examined the possible effect of credit constraint on the intensity of fertilizer adoption and productivity among households who vary in their credit constraint status. The study used cross sectional farm household level data collected in 2013 from 1165 randomly sampled households. An endogenous switching regression model is used for analytical purpose so as to account for selection bias and heterogeneity problem. The result evidence that intensity of fertilizer adoption and agriculture productivity would be higher among farm households who are found to be credit unconstrained. The result revealed that factors that affect the intensity of fertilizer adoption and agriculture productivity among credit constrained farm households are different from their counterparts. Age and age square of the household head, primary cooperative membership, number of Oxen, ownership of TV, hired labor as dummy and use of manure have significant effect on the intensity of fertilizer adoption among credit unconstrained regimes. Whereas, household size, altitude of land, ownership of land, way of land cultivation, and being risk averse household have significant effect on the intensity of fertilizer adoption in the credit constrained regimes. The result shown that size of land has negative and significant effect on the intensity of fertilizer adoption in the constrained regime while it has positive and significant effect on the intensity of adoption in the unconstrained regime. Age and age square of the household head, TLU, hired labor as dummy are the factors that significantly affect the productivity in the unconstrained regimes. The number of oxen and distance of farm land from residence also affect the productivity. Land size has found the significant and negative effect on the productivity in the constrained regime, but it has the positive and significant effect in the credit constrained regime. The policy implication is that the policy makers should account the credit constraint heterogeneity among farm households when they design agricultural policy to increase intensity of fertilizer adoption and thereby boost productivity of agriculture.

Empirical Study on Effect of Credit Constraints on Productivity of Firms in Growth Enterprise Market of China

This paper investigates the effects that credit constraints have on firms’ productivity. The FGLS and OLS estimations are employed as our analysis tool. Then we use the unbalanced panel data of SMEs and innovation-oriented firms listed in the board of Growth Enterprise Market of China from 2001 to 2016 as the validation. In our analysis, the ownership of firm is also taken into consideration. The empirical results show that credit constraints don’t have significant influence on productivity, while the effect actually exists when considering ownership.

The Effect of Credit Constraints on Housing Choices: The Case of LTV Limit

This paper examines the effects of a Loan-to-Value (LTV) limit on household's choices in the credit and housing markets. Using a large and novel micro database from Israel, including rich information on the loans, the borrowers and the acquired assets, and using matching techniques, I find that the LTV limit had an effect on the mortgage contract terms, but did not lead to credit rationing (no segment of the population is excluded from the market). The LTV limit induced borrowers to buy cheaper and lower quality assets and to move farther from high demand areas to lower quality neighborhoods. I conclude that the LTV limit, the most common macroprudentail policy tool, has an impact not only from a financial stability perspective, by reducing the leverage of households, but also has unintended consequences on borrower's choices in the housing market.

Do Financial Crises Moderate Entrepreneurial Recipes? A Comparative Fuzzy Analysis

ABSTRACTThis study performs a fuzzy set qualitative comparative analysis (fsQCA) on entrepreneurial recipes. The research focuses on the moderating role of the 2007 financial crisis on the antecedents of entrepreneurship. Standard regressions analysis proves insufficient to uncover asymmetrical and complex relationships that explain the effect of credit constraints on new business. Empirical results on longitudinal data suggest that the crisis moderated entrepreneurial recipes in Spain. This research contributes to QCA analysis by studying moderation effects on time-series data.

Credit Constraints and Household Selection of Financial Assets

Based on the micro-data of China Household Finance Survey, this paper analyzes the effects of credit constraints on household selection of financial assets empirically. The results show that credit constraints have the significant negative impact on participation rate and allocation ratio of savings, stock, risky financial assets. Credit constraints keep families from holding much savings. Those families who face credit constraints have to use their own money to meet the demand of funds without bank loans. Those families who face credit constraints are no willing to invest in stock market and hold less risky assets because of their lower risk tolerance. Besides, credit constraints can increase the participation rate of informal borrowing and reduce household private lending. There are few domestic articles analyzing the relationship between credit constraints and household selection of financial assets. Therefore, this paper can be more of reference value for the follow-up study. Meanwhile, the results show that reducing credit constraints is helpful for the household participation in capital market.

Graduates, Dropouts and Slow Finishers: The Effects of Credit Constraints on University Outcomes

AbstractThe effect of credit constraints on university outcomes is studied. Credit constraints have a negative relationship with dropout, especially on lower achieving high school graduates. Credit constrained students with strong high school achievement are 13–15% more (less) likely to graduate (be slow finishers) relative to otherwise similar students who are potentially or unlikely constrained. Using competing risk analysis, we find dropout is most likely in the first year of study and falls over time for all students. After 3 years of study, the risk of dropout increases for students who are constrained suggesting constraints may eventually bind on these students.

Entrepreneurial Engagement Choice and Credit Constraints: Empirical Analysis of Urban Informal Microentrepreneurship in Sri Lanka

Microenterprise approach is increasingly acknowledged and policy based approach that recognizes micro entrepreneurs as the core of the informal sector, which needs to be assisted to start at entrepreneur level or to become growing, self-sustaining businesses to signify its contribution to economic growth and development in the global south. This study investigated the existence, effects of credit constraints and the determinants of entrepreneurial engagement choice taking a sample of 300 micro entrepreneurs who reside in underserved settlements in Sri Lanka. Accordingly, whether the entry choice is constrained by the availability of credit is empirically examined in a multivariate setting, applying discrete choice model on the conceptual basis of the theory of occupational choice. It was found a positive correlation between wealth and the probability of starting a business which implies that initial wealth determines the amount of capital required for business startups thus providing evidence of financial constraints. Initial wealth, education, tradition, trained or parent’s occupation and previous employment reported as important predictors on the probability of starting a business as a self employed or entrepreneur compared to subsistence activities. This study provides useful insights for policy makers to plan their activities to promote entrepreneurship in the urban informal sector in the country rather than formulating ad-hoc policies to provide fixed financial assistances on mis specified targets.

Evidence on Credit Constraints, University Attendance and Income Contingent Loans

The effects of credit constraints on university participation are investigated in a setting where income contingent tuition loans are available to students. Students most likely to face credit constraints have the same or higher probability of attending university as all other students, given their high school achievement. A novel approach to handle potential bias arising from unobserved heterogeneity is proposed. An estimate of unobservable heterogeneity based on post-secondary plans reported during ninth grade is constructed. This estimate is found to explain university attendance but does not overturn results regarding the effects of credit constraints.

Do credit constraints reduce foreign jobs? A note on foreign direct employment

This article studies the effect of credit constraints on the jobs created by multinational enterprises in host countries. Although most FDI is labour intensive, few studies delve into the determinants of foreign direct employment (FDE). This article constructs a model of limited commitment between the financed and financing parties to explain how FDE is affected by financial frictions. Moreover, this study examines FDE’s determinants empirically on a global data set including FDE data from 161 countries during 2003–2010 by means of the gravity equation. Results show that credit constraints during the Great Recession roughly halved FDE, tripling the effect on FDI and suggesting that domestic jobs slightly outpaced foreign jobs.

Credit Constraints and Price Expectations of Homeowners

This paper examines the effect of credit constraints on the sale price expectations of homeowners. We extend the results of Genesove and Mayer (1997) by using a sample of mover and non-mover families living in the Netherlands—a country without formal down-payment requirements. We find that homeowners who are more credit constrained expect to sell their house for a higher price. Homeowners already seem to compensate for credit constraints at the very first stages of the transaction process. These results imply that the findings of Genesove and Mayer (1997) are much more generally applicable than previously considered.

Credit constraints, fragmentation, and inter-firm transactions

In this paper, we develop a model to illustrate the effects of credit constraints on changes in organizational form and firm entry. We find net borrowers to have a greater incentive to specialize in producing fragments within the production process when internal finance plays an important role (the specialization effect). Moreover, such credit constraint-induced specialization encourages the entry of new firms (the entry effect). When the entry effect dominates the specialization effect, total output is greater under fragmentation, which is contrary to the conventional wisdom that fragmentation may lead to the double-marginalization problem and reduce output.

Graduates, Dropouts and Slow Finishers: The Effects of Credit Constraints on University Outcomes

The effect of credit constraints on university outcomes is studied. Credit constraints have a negative relationship with dropout, especially on lower achieving high school graduates. Credit constrained students with strong high school achievement are 13–15% more (less) likely to graduate (be slow finishers) relative to otherwise similar students who are potentially or unlikely constrained. Using competing risk analysis, we find dropout is most likely in the first year of study and falls over time for all students. After 3 years of study, the risk of dropout increases for students who are constrained suggesting constraints may eventually bind on these students.

Equity Market Liberalization, Credit Constraints and Income Inequality

This paper provides compelling evidence that equity market liberalization, the most efficient way to smooth financial market frictions such as credit constraints, can alleviate persistent cross-dynastic income inequality through increasing the accumulation of human capital. We examine the impact of equity market liberalization on inequality by using the data of 72 countries during 1980-2006. The effect is robust to alternative measurements of equity market liberalization. Furthermore, equity market liberalization is associated with the different effects of credit constraints on the persistence of cross-dynastic income inequality. Finally, it is proved that foreign equity flows benefit the initially less active stock markets more than the active ones, which is important evidence that foreign equity flows act as a substitute for the domestic financial market. This finding emphasizes the importance of equity market liberalization for the poor, which helps to reduce inequality.

Export Growth and Credit Constraints

We investigate the effect of credit constraints on the growth of exports at the micro level. We develop a stylized dynamic model showing credit constraints play a key role in early stages of exporting, but not in later stages. Our empirical results using product level data on exports to twelve European Union members and the U.S. support the model's predictions: exports from more credit constrained and riskier exporters grow faster. Export growth rates decrease with duration and converge across countries. While an important force in early stages, credit constraints affect export growth much less as the duration of exports increases.