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Does access to credit improve household welfare? Evidence from Ethiopia using endogenous regime switching regression

Author

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  • Temesgen Fitamo Bocher
  • Bamlaku Alamirew Alemu
  • Zerihun Getachew Kelbore

Abstract

Purpose - The purpose of this paper is to investigate how credit access affects the welfare of households and sheds light on how household characteristics influence the decision to take credit and the efficiency in credit use. Design/methodology/approach - This study uses data from the fourth round of the Ethiopian Rural Household Survey conducted in 2009, and examines factors that determine the decision to take credit and the effect of such decision on household welfare. The household welfare variable is measured by the food security indicator and total food expenditure. The study employs endogenous Regime Switching model to account for endogeneity in access to credit and self-selection bias in the decision to participate in credit. Findings - The result from the kernel distribution shows households with access to credit have more consumption expenditure than those without access to credit. The ordinary least square regression shows that access to credit increases total consumption by 12 percent without considering self-selection bias. Participation in non-farm activity increases the demand for credit by 17 percent. Land holding, household size, and participation in saving associations increase the probability of getting credit by 5, 11, and 20 percent, respectively. Access to credit appears to have a positive impact on food security in both actual and counterfactual cases for the current credit receivers. Originality/value - This study provides a thorough analysis of the impacts of access to credit on household welfare in Ethiopia. The study contributes to the debate on the link between access to credit and household welfare and provides valuable input for policy makers.

Suggested Citation

  • Temesgen Fitamo Bocher & Bamlaku Alamirew Alemu & Zerihun Getachew Kelbore, 2017. "Does access to credit improve household welfare? Evidence from Ethiopia using endogenous regime switching regression," African Journal of Economic and Management Studies, Emerald Group Publishing, vol. 8(1), pages 51-65, March.
  • Handle: RePEc:eme:ajempp:ajems-03-2017-145
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    Citations

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    Cited by:

    1. Simplice A. Asongu & Nicholas M. Odhiambo, 2018. "ICT, Financial Access and Gender Inclusion in the Formal Economic Sector: Evidence from Africa," The African Finance Journal, Africagrowth Institute, vol. 20(2), pages 45-65.
    2. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Size, efficiency, market power, and economies of scale in the African banking sector," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-22, December.
    3. Simplice Asongu & Nicholas Odhiambo, 2017. "Mobile banking usage, quality of growth, inequality and poverty in developing countries," Working Papers of the African Governance and Development Institute. 17/046, African Governance and Development Institute..
    4. Simplice A. Asongu & Nicholas M. Odhiambo, 2020. "The Mobile Phone, Information Sharing, and Financial Sector Development in Africa: a Quantile Regression Approach," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 11(3), pages 1234-1269, September.
    5. Meniago, Christelle & Asongu, Simplice A., 2018. "Revisiting the finance-inequality nexus in a panel of African countries," Research in International Business and Finance, Elsevier, vol. 46(C), pages 399-419.
    6. Simplice Asongu & Rexon Nting & Joseph Nnanna, 2020. "Market power and cost efficiency in the African banking industry," Journal of Economic Studies, Emerald Group Publishing, vol. 47(6), pages 1247-1264, May.
    7. Simplice A. Asongu & Nicholas M. Odhiambo, 2020. "Finance, Governance and Inclusive Education in Sub-Saharan Africa," Working Papers of The Association for Promoting Women in Research and Development in Africa (ASPROWORDA). 20/007, The Association for Promoting Women in Research and Development in Africa (ASPROWORDA).
    8. Asongu, Simplice & Folarin, Oludele & Biekpe, Nicholas, 2019. "The Stability of Demand for Money in the Proposed Southern African Monetary Union," MPRA Paper 101092, University Library of Munich, Germany.
    9. Asongu, Simplice A. & Nnanna, Joseph & Acha-Anyi, Paul N., 2020. "Finance, inequality and inclusive education in Sub-Saharan Africa," Economic Analysis and Policy, Elsevier, vol. 67(C), pages 162-177.
    10. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Testing the Quiet Life Hypothesis in the African Banking Industry," Journal of Industry, Competition and Trade, Springer, vol. 19(1), pages 69-82, March.
    11. Simplice A. Asongu & Paul N. Acha-Anyi, 2017. "ICT, conflicts in financial intermediation and financial access: evidence of synergy and threshold effects," Netnomics, Springer, vol. 18(2), pages 131-168, December.
    12. Simplice A. Asongu, 2019. "Financial Access and Productivity Dynamics in Sub-Saharan Africa," Research Africa Network Working Papers 19/052, Research Africa Network (RAN).
    13. Simplice A. Asongu & Joseph Nnanna & Paul N. Acha-Anyi, 2019. "Inequality and gender economic inclusion: The moderating role of financial access in Sub-Saharan Africa," Working Papers of The Association for Promoting of Women in Research and Development in Africa (ASPROWORDA). 19/004, The Association for Promoting of Women in Research and Development in Africa (ASPROWORDA).
    14. Asongu, Simplice A. & Nnanna, Joseph & Acha-Anyi, Paul N., 2020. "Inequality and gender economic inclusion: The moderating role of financial access in Sub-Saharan Africa," Economic Analysis and Policy, Elsevier, vol. 65(C), pages 173-185.
    15. Simplice A. Asongu & Joseph Nnanna & Paul N. Acha-Anyi, 2020. "Inclusive Education for Inclusive Economic Participation: the Financial Access Channel," Working Papers of The Association for Promoting of Women in Research and Development in Africa (ASPROWORDA). 20/003, The Association for Promoting of Women in Research and Development in Africa (ASPROWORDA).
    16. Simplice A. Asongu & Nicholas M. Odhiambo, 2018. "ICT, Financial Access and Gender Inclusion in the Formal Economic Sector: Evidence from Africa," Working Papers of The Association for Promoting of Women in Research and Development in Africa (ASPROWORDA). 18/001, The Association for Promoting of Women in Research and Development in Africa (ASPROWORDA).
    17. Simplice Asongu & Jacinta Nwachukwu, 2018. "Bank size, information sharing and financial access in Africa," International Journal of Managerial Finance, Emerald Group Publishing, vol. 14(2), pages 188-209, April.
    18. Li, Changsheng & Ma, Wanglin & Mishra, Ashok K. & Gao, Liangliang, 2020. "Access to credit and farmland rental market participation: Evidence from rural China," China Economic Review, Elsevier, vol. 63(C).
    19. Asongu, Simplice A. & Folarin, Oludele E. & Biekpe, Nicholas, 2019. "The long run stability of money demand in the proposed West African monetary union," Research in International Business and Finance, Elsevier, vol. 48(C), pages 483-495.
    20. Asongu, Simplice & Nnanna, Joseph & Acha-Anyi, Paul, 2020. "Inclusive Education for Inclusive Economic Participation: the Financial Access Channel," MPRA Paper 103151, University Library of Munich, Germany.
    21. Simplice A. Asongu & Jules R. Minkoua N., 2018. "Dynamic openness and finance in Africa," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 27(4), pages 409-430, May.
    22. Samuel Kobina Annim & Raymond Boadi Frempong, 2018. "Effects of access to credit and income on dietary diversity in Ghana," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 10(6), pages 1649-1663, December.
    23. Thai, Pham Huu Hong, 2018. "Does household credit benefit child schooling for the poorest ethnic minorities? New evidence from a transitional economy," Children and Youth Services Review, Elsevier, vol. 89(C), pages 103-112.

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