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Credit constraints and productivity in Peruvian agriculture

Credit constraints and productivity in Peruvian agriculture This article evaluates the performance of a rural credit market in Peru. We develop a model that shows that collateral requirements imposed by lenders in response to asymmetric information can lead not just to quantity rationing but also to transaction cost rationing and risk rationing. Just like quantity rationing, these two additional forms of nonprice rationing adversely affect farm resource allocation and productivity. We test the insights of the model using a panel data set from Northern Peru. We estimate the returns to productive endowments for constrained and unconstrained households using a switching regression model. We find that, consistent with the theory, productivity is independent of endowments for unconstrained households but is tightly linked to endowments for constrained households. We estimate that credit constraints lower the value of agricultural output in the study region by 26%. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Agricultural Economics Wiley

Credit constraints and productivity in Peruvian agriculture

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References (45)

Publisher
Wiley
Copyright
Copyright © 2008 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0169-5150
eISSN
1574-0862
DOI
10.1111/j.1574-0862.2008.00334.x
Publisher site
See Article on Publisher Site

Abstract

This article evaluates the performance of a rural credit market in Peru. We develop a model that shows that collateral requirements imposed by lenders in response to asymmetric information can lead not just to quantity rationing but also to transaction cost rationing and risk rationing. Just like quantity rationing, these two additional forms of nonprice rationing adversely affect farm resource allocation and productivity. We test the insights of the model using a panel data set from Northern Peru. We estimate the returns to productive endowments for constrained and unconstrained households using a switching regression model. We find that, consistent with the theory, productivity is independent of endowments for unconstrained households but is tightly linked to endowments for constrained households. We estimate that credit constraints lower the value of agricultural output in the study region by 26%.

Journal

Agricultural Economics – Wiley

Published: Nov 1, 2008

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