Microeconomic impacts of a state-funded farmer loan program
Purpose – The purpose of this paper is to determine if there are positive microeconomic effects from a state-funded loan participation program on farm productivity and investment behavior. Design/methodology/approach – The authors take the approach that access to credit solves a liquidity problem. If a credit constraint exists it results in a suboptimal allocation of resources and a reduction in farm output and profitability. A two-stage regression model approach is used to analyze farmer survey and loan application data. In the first stage, a probit regression model is used to identify the farmers who are likely to be credit rationed. In the second stage, switching regression models are used to observe the effect of credit rationing on farm productivity and on farm investment behavior. Findings – It is found that there are liquidity effects of credit constraints for a significant share of the beginning and low-resource farmers who participated in the state-funded farm loan program. After controlling for various farm and farmer characteristics, the estimated productivity and investment demand equations imply that a 1 percent increase in credit received by credit constrained farmers under the state program increased their gross income by about 0.49 percent, and their investments in depreciable assets by about 0.33 percent. Originality/value – This paper is the first to apply the switching regression model to a state-funded farm loan program for the purpose of evaluating the financial impacts on farmer participants.
Volume (Year): 72 (2012)
Issue (Month): 1 (March)
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References listed on IDEAS
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- Ahearn, Mary Clare, 2009. "Beginning Farmers and Ranchers: Who Are They?," Amber Waves, United States Department of Agriculture, Economic Research Service, June.
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IAMO Discussion Papers
45, Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO).
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- Martin Petrick, 2004. "A microeconometric analysis of credit rationing in the Polish farm sector," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 31(1), pages 77-101, March.
- repec:fth:pennfi:69 is not listed on IDEAS
- Ahearn, Mary Clare & Newton, Doris J., 2009. "Beginning Farmers and Ranchers," Economic Information Bulletin 58618, United States Department of Agriculture, Economic Research Service.
- Jappelli, Tullio & Pischke, Jörn-Steffen & Souleles, Nicholas, 1995.
"Testing for Liquidity Constraints in Euler Equations with Complementary Data Sources,"
CEPR Discussion Papers
1138, C.E.P.R. Discussion Papers.
- Tullio Jappelli & Jörn-Steffen Pischke & Nicholas S. Souleles, 1998. "Testing For Liquidity Constraints In Euler Equations With Complementary Data Sources," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 251-262, May.
- T. Jappelli & J-S Pischke & N.S. Souleles, 1995. "Testing for Liquidity Constraints in Euler Equations with Complementary Data Sources," Working papers 95-19, Massachusetts Institute of Technology (MIT), Department of Economics.
- Charles A. Towe & Mitchell J. Morehart, 2009. "Credit Constraints: Their Existence, Determinants, and Implications for U.S. Farm and Nonfarm Sole Proprietorships," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 275-289.
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