Do Small Farmers Borrow Less When the Lending Rate Increases? Interest Rate Elasticity of Rice Farmers in the Philippines
The new generation of credit programs directed at small borrowers emphasizes financial sustainability. Based on anecdotal information, proponents of cost recovery claim that raising formal lending rates would have a minimal impact on borrowing. However, rigorous evidence for this conjecture is sparse. The present study conducts an econometric test of this conjecture using data from a survey of small rice farmers from the Philippines. Alternative regression techniques tend to reject the conjecture; in particular, a regression that controls for selection effects shows a unitary elastic response of formal borrowing to the lending rate. Copyright 2009 The Author. Journal compilation 2009 East Asian Economic Association and Blackwell Publishing Ltd..
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Volume (Year): 23 (2009)
Issue (Month): 4 (December)
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