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Self-Selection into Credit Markets: Evidence from Agriculture in Mali

Author

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  • LORI BEAMAN
  • DEAN KARLAN
  • BRAM THUYSBAERT
  • CHRISTOPHER UDRY

Abstract

We partnered with a micro-lender in Mali to randomize credit offers at the village level. Then, in no-loan control villages, we gave cash grants to randomly selected households. These grants led to higher agricultural investments and profits, thus showing that liquidity constraints bind with respect to agricultural investment. In loan-villages, we gave grants to a random subset of farmers who (endogenously) did not borrow. These farmers have lower – in fact zero – marginal returns to the grants. Thus we find important heterogeneity in returns to investment and strong evidence that farmers with higher marginal returns to investment self-select into lending programs.

Suggested Citation

  • Lori Beaman & Dean Karlan & Bram Thuysbaert & Christopher Udry, 2014. "Self-Selection into Credit Markets: Evidence from Agriculture in Mali," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/884, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:14/884
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    References listed on IDEAS

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    1. Lori Beaman & Dean Karlan & Bram Thuysbaert & Christopher Udry, 2013. "Profitability of Fertilizer: Experimental Evidence from Female Rice Farmers in Mali," American Economic Review, American Economic Association, vol. 103(3), pages 381-386, May.
    2. Suresh de Mel & David McKenzie & Christopher Woodruff, 2009. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 423-423.
    3. Orazio Attanasio & Britta Augsburg & Ralph De Haas & Emla Fitzsimons & Heike Harmgart, 2011. "Group lending or individual lending? Evidence from a randomised field experiment in Mongolia," IFS Working Papers W11/20, Institute for Fiscal Studies.
    4. Jessica Cohen & Pascaline Dupas & Simone Schaner, 2015. "Price Subsidies, Diagnostic Tests, and Targeting of Malaria Treatment: Evidence from a Randomized Controlled Trial," American Economic Review, American Economic Association, vol. 105(2), pages 609-645, February.
    5. Tavneet Suri, 2011. "Selection and Comparative Advantage in Technology Adoption," Econometrica, Econometric Society, vol. 79(1), pages 159-209, January.
    6. Augsburg, Britta & de Haas, Ralph & Harmgart, Heike & Meghir, Costas, 2014. "Microfinance at the margin: Experimental evidence from Bosnia and Herzegovina," Discussion Papers, Research Unit: Economics of Change SP II 2014-304, WZB Berlin Social Science Center.
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    Cited by:

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    2. Diego Vera-Cossio, 2022. "Targeting Credit through Community Members," Journal of the European Economic Association, European Economic Association, vol. 20(2), pages 778-821.
    3. Marup Hossain & Mohammad Abdul Malek & Amzad Hossain & Hasib Reza & Shakil Ahmed, 2016. "Impact Assessment of Credit Program for Tenant Farmers in Bangladesh: Evidence from a Field Experiment," CIRJE F-Series CIRJE-F-1025, CIRJE, Faculty of Economics, University of Tokyo.
    4. Imke Hering & Oliver Musshoff, 2017. "Progressive Lending in Microfinance—What about the Farmers?," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 803-828, August.
    5. Marup Hossain & Conner Mullally, 2022. "Using evaluation data to predict loan performance among poor borrowers: The case of BRAC’s asset transfer and microcredit programmes," Development Policy Review, Overseas Development Institute, vol. 40(3), May.
    6. Inna Cintina & Inessa Love, 2014. "The Miracle of Microfinance Revisited: Evidence from Propensity Score Matching," Working Papers 201424, University of Hawaii at Manoa, Department of Economics.
    7. Seck, Abdoulaye, 2018. "Heterogeneous Credit Constraints and Smallholder Farming in Senegal," 92nd Annual Conference, April 16-18, 2018, Warwick University, Coventry, UK 273491, Agricultural Economics Society.
    8. Günther Fink & B. Kelsey Jack & Felix Masiye, 2020. "Seasonal Liquidity, Rural Labor Markets, and Agricultural Production," American Economic Review, American Economic Association, vol. 110(11), pages 3351-3392, November.
    9. Marshall Burke & Lauren Falcao Bergquist & Edward Miguel, 2019. "Sell Low and Buy High: Arbitrage and Local Price Effects in Kenyan Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 785-842.
    10. Lota Tamini & Ibrahima Bocoum & Ghislain Auger & Kotchikpa Gabriel Lawin & Arahama Traoré, 2019. "Enhanced Microfinance Services and Agricultural Best Management Practices: What Benefits for Smallholders Farmers? An Evidence from Burkina Faso," CIRANO Working Papers 2019s-11, CIRANO.
    11. Gashaw Tadesse Abate & Tanguy Bernard & Alan de Brauw & Nicholas Minot, 2018. "The impact of the use of new technologies on farmers’ wheat yield in Ethiopia: evidence from a randomized control trial," Agricultural Economics, International Association of Agricultural Economists, vol. 49(4), pages 409-421, July.
    12. Hee-Seung Yang & Booyuel Kim & Rony Rodriguez-Ramirez, 2022. "Does the Small Business Programme Benefit Self-Employed Workers? Evidence from Nicaragua," Working papers 2022rwp-207, Yonsei University, Yonsei Economics Research Institute.
    13. Nittai K. Bergman & Rajkamal Iyer & Richard T. Thakor, 2015. "Financial Accelerator at Work: Evidence from Corn Fields," NBER Working Papers 21086, National Bureau of Economic Research, Inc.
    14. Vandercasteelen, Joachim & Christiaensen, Luc, 2020. "Breaking down silos: On post-harvest loss interventions in Tanzania," Policy briefs 1247693176, International Food Policy Research Institute (IFPRI).
    15. Karlan, Dean & Knight, Ryan & Udry, Christopher, 2015. "Consulting and capital experiments with microenterprise tailors in Ghana," Journal of Economic Behavior & Organization, Elsevier, vol. 118(C), pages 281-302.
    16. Chowdhury, Shyamal & Smits, Joeri & Sun, Qigang, 2020. "Does Access to Microcredit Lead to Technology Adoption by Smallholder Farmers? Experimental Evidence from Rural Bangladesh," 2020 Conference (64th), February 12-14, 2020, Perth, Western Australia 305247, Australian Agricultural and Resource Economics Society.
    17. Fiala, Nathan, 2018. "Returns to microcredit, cash grants and training for male and female microentrepreneurs in Uganda," World Development, Elsevier, vol. 105(C), pages 189-200.
    18. Kara, Alper & Zhou, Haoyong & Zhou, Yifan, 2021. "Achieving the United Nations' sustainable development goals through financial inclusion: A systematic literature review of access to finance across the globe," International Review of Financial Analysis, Elsevier, vol. 77(C).
    19. Eustadius Francis Magezi & Nakano, Yuko, 2020. "The Impact of Microcredit on Household Income: The Case of BRAC in Tanzania," Japanese Journal of Agricultural Economics (formerly Japanese Journal of Rural Economics), Agricultural Economics Society of Japan (AESJ), vol. 22.

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    More about this item

    Keywords

    credit markets; agriculture; returns to capital;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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