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Access to credit, factor allocation and farm productivity: Evidence from the CEE transition economies

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  • Pavel Ciaian
  • Jan Falkowski
  • d'Artis Kancs

Abstract

Purpose – The purpose of this paper is to analyse how farm production and input use (land, variable inputs, labour, and capital) is related to farm access to credit in the Central and Eastern Europe (CEE) transition countries. Design/methodology/approach – Drawing on a unique farm level panel data set with 37,409 observations and employing a matching estimator, this paper analyses how farm access to credit affects farm input allocation and farm efficiency in the CEE transition countries. The large size of the FADN data set has an additional advantage. It allows the authors to employ a semi-parametric estimator based on the propensity score matching. Using more than 37,409 observations assures that the loss in efficiency of semi-parametric estimates, as compared to parametric ones, is not a problem. This is important for at least two reasons. First, applying a semi-parametric propensity score matching (PSM) estimator allows to control for any heterogeneity in the relationship between farm performance and their observable characteristics (in particular access to credit). Second, matching estimators are robust in situations where farms having access to credit systematically differ from those that do not. Findings – It is found that farms are asymmetrically credit constrained between inputs. The use of variable inputs and capital investment increases up to 2.3 percent and 29 percent, respectively, per 1,000 EUR of additional credit. The authors' estimates suggest also that farm access to credit increases the total factor productivity up to 1.9 percent per 1,000 EUR of additional credit, indicating that an improved access to credit results in adjusting the relative input intensities on farms. This finding is further supported by a negative effect of better access to credit on labour, suggesting that these two are substitutes. Interestingly, farms are found not to be credit constrained with respect to land. Originality/value – To the best of the authors' knowledge, the present paper is the first to investigate the importance of access to credit for farm performance in the CEE region as a whole. JEL classification: D14, G21, Q12, P14

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Agricultural Finance Review.

Volume (Year): 72 (2012)
Issue (Month): 1 (March)
Pages: 22-47

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Handle: RePEc:eme:afrpps:v:72:y:2011:i:1:p:22-47

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Related research

Keywords: Access to credit; Central Europe; Credit; Eastern Europe; Factor allocation; Farms; Investments; Productivity; Transition countries;

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References

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Cited by:
  1. Jarko Fidrmuc & Pavel Ciaian & d'Artis Kancs & Jan Pokrivcak, 2011. "Credit Constraints, Heterogeneous Firms and Loan Defaults," EERI Research Paper Series EERI_RP_2011_17, Economics and Econometrics Research Institute (EERI), Brussels.
  2. Ciaian, Pavel & Pokrivcak, Jan and Katarina Szegenyova, 2012. "Do agricultural subsidies crowd out or stimulate rural credit market institutions? The case of EU Common Agricultural Policy," European Integration online Papers (EIoP), European Community Studies Association Austria (ECSA-A), vol. 16, November.

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