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The impact of credit on the technical efficiency of food crop producing smallholder farmers in Ethiopia

Author

Listed:
  • Melkamu Girma Koricho
  • Musa Hasen Ahmed

Abstract

Purpose - This study examines the impact of access to credit on the technical efficiency (TE) of maize-producing smallholder farmers in Ethiopia and explores factors determining credit utilization. Design/methodology/approach - The study relies on nationally representative data collected in 2015/2016. The data are analyzed by combining the Propensity Score Matching technique with a stochastic frontier model that corrects selectivity bias arising from unobserved variables. Findings - The result shows that credit service improves TE and helps smallholder farmers to achieve the maximum possible output level from a given set of inputs used. Originality/value - To the best of author’s knowledge, no study has yet measured the impact of access to credit on TE by controlling for both observed and unobserved heterogeneities. Existing research relied on a single production frontier model, assuming that credit users and non-users have similar production characteristics or ignored selection bias due to observable and unobservable characteristics.

Suggested Citation

  • Melkamu Girma Koricho & Musa Hasen Ahmed, 2021. "The impact of credit on the technical efficiency of food crop producing smallholder farmers in Ethiopia," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 82(5), pages 847-856, October.
    • Handle: RePEc:eme:afrpps:afr-08-2021-0108
    DOI: 10.1108/AFR-08-2021-0108
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    More about this item

    Keywords

    Credit utilization; Selection bias; Matching; Stochastic production frontier; Technical efficiency; Ethiopia; D13; D24; Q14;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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