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The Impact of Access to Credit on the Adoption of hybrid maize in Malawi: An Empirical test of an Agricultural Household Model under credit market failure

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  • Simtowe, Franklin
  • Zeller, Manfred

Abstract

A substantial amount of the literature has reported on the impact of access to credit on technology adoption, and many studies find that credit has a positive impact on adoption. However, most existing studies have failed to explicitly measure and analyze the amount of credit that farm households are able to borrow and whether they are credit constrained or not. They overlooked the fact that credit access can be a panacea for non-adoption only if it is targeted at households that face binding liquidity constraints. Guided by the frame work of a household model under credit market failure, this paper aims at investigating the impact of access to credit on the adoption of hybrid maize among households that vary in their credit constraints. The data used in the study is from Malawi collected by the International Food Policy Research Institute (IFPRI).Using the direct elicitation approach, households are classified into constrained and unconstrained regimes. We start by estimating the probability of being credit constrained, followed by an estimation of the impact of access to credit for the two categories of households (credit constrained and unconstrained), while accounting for selection bias. The impact of access to credit is estimated using a switching regression in a Double-Hurdle model. Results reveal that while access to credit increases adoption among credit constrained households, it has no effect among unconstrained households. Results also show that factors that affect adoption among credit constrained households are different from those that that affect adoption among unconstrained household. Landholding size, for example, has opposite effects on adoption in the two regimes of households. The policy implication is that microfinance institutions should consider scaling up their credit services to ensure that more households benefit from it, and in so doing maize adoption will be enhanced.

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  • Simtowe, Franklin & Zeller, Manfred, 2006. "The Impact of Access to Credit on the Adoption of hybrid maize in Malawi: An Empirical test of an Agricultural Household Model under credit market failure," MPRA Paper 45, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:45
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    2. Faruque-As-Sunny & Zuhui Huang & Taonarufaro Tinaye Pemberai Karimanzira, 2018. "Investigating Key Factors Influencing Farming Decisions Based on Soil Testing and Fertilizer Recommendation Facilities (STFRF)—A Case Study on Rural Bangladesh," Sustainability, MDPI, vol. 10(11), pages 1-24, November.
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    7. Dennis Kimoso Mulupi & Mose P. B Ph.D & Kenneth Waluse Sibiko Ph.D, 2021. "Subsidized Fertilizer Utilization and Determinants among Small-scale Maize Farmers in Kakamega County, Kenya," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(11), pages 614-622, November.
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    11. Yi, Fujin & Lu, Wuyi & Zhou, Yingheng, 2015. "Cash Transfers and Multiplier Effect: Lessons from the Grain Subsidy Program in China," 2015 Conference, August 9-14, 2015, Milan, Italy 211877, International Association of Agricultural Economists.
    12. Mulwa, Chalmers & Marenya, Paswel & Rahut, Dil Bahadur & Kassie, Menale, 2015. "Response to Climate Risks among Smallholder Farmers in Malawi: A Multivariate Probit Assessment of the Role of Information, Household Demographics and Farm Characteristics," 2015 Conference, August 9-14, 2015, Milan, Italy 212511, International Association of Agricultural Economists.
    13. Stellah Mong’ina Masese, 2021. "Diversification of Livelihoods in Urban Informal Settlements in Nairobi, Kenya," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(2), pages 546-553, February.
    14. Kankwamba, Henry & Mangisoni, Julius H. & Simtowe, Franklin & Mausch, Kai & Siambi, Moses, 2012. "Improved Legume Seed Demand Systems in Central Malawi: What Do Farmers' Seed Expenditures Say about Their Preferences?," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 123945, International Association of Agricultural Economists.
    15. Gin, Xavier & Yang, Dean, 2009. "Insurance, credit, and technology adoption: Field experimental evidencefrom Malawi," Journal of Development Economics, Elsevier, vol. 89(1), pages 1-11, May.
    16. Finagnon Antoine Dedewanou & Rolande C. B. Kpekou Tossou, 2022. "Remittances and agricultural productivity in Burkina Faso," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 44(3), pages 1573-1590, September.
    17. Bola Amoke Awotide & Adebayo Ogunniyi & Kehinde Oluseyi Olagunju & Lateef Olalekan Bello & Amadou Youssouf Coulibaly & Alexander Nimo Wiredu & Bourémo Kone & Aly Ahamadou & Victor Manyong & Tahirou Ab, 2022. "Evaluating the Heterogeneous Impacts of Adoption of Climate-Smart Agricultural Technologies on Rural Households’ Welfare in Mali," Agriculture, MDPI, vol. 12(11), pages 1-16, November.
    18. Adams, Abdulai & Jumpah, Emmanuel Tetteh & Caesar, Livingstone Divine, 2021. "The nexuses between technology adoption and socioeconomic changes among farmers in Ghana," Technological Forecasting and Social Change, Elsevier, vol. 173(C).
    19. Onyeneke, Robert Ugochukwu & Igberi, Christiana Ogonna, 2020. "Climate change adaptation actions by fish farmers: evidence from the Niger Delta Region of Nigeria," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 64(2), April.
    20. Julián Aramburu & Mario González & Lina Salazar & Paul Winters, 2014. "When a Short-term Analysis is not a Short-term Approach: Impacts of Agricultural Technology Adoption in Bolivia," IDB Publications (Working Papers) 86815, Inter-American Development Bank.
    21. Yi, Fujin & Sun, Dingqiang & Zhou, Yingheng, 2015. "Grain subsidy, liquidity constraints and food security—Impact of the grain subsidy program on the grain-sown areas in China," Food Policy, Elsevier, vol. 50(C), pages 114-124.
    22. Aramburu, Julián & González, Mario & Salazar, Lina & Winters, Paul, 2014. "When a Short-term Analysis is not a Short-term Approach: Impacts of Agricultural Technology Adoption in Bolivia," IDB Publications (Working Papers) 6676, Inter-American Development Bank.
    23. Yi, Fujin & Sun, Dingqiang, 2014. "Grain Subsidy, Liquidity Constraints and Food security—Impact of the Grain Subsidy Program on the Grain-Sown Areas in China," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169779, Agricultural and Applied Economics Association.

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    More about this item

    Keywords

    credit constraints; double-hurdle; hybrid maize; adoption; Malawi;
    All these keywords.

    JEL classification:

    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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