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Does Credit Access Improve Firm Output? Evidence from a Field Experiment in Bangladesh

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  • Jimi, Nusrat A
  • Kumbhakar, Subal
  • Nikolov, Plamen V
  • Malek, Mohammad Abdul

Abstract

Poor financial environment of rural developing economy leads to underinvestment and inefficiency of marginal and small-scale farm households. Development interventions for providing improved market access and credit at subsidized interest rate to small farm households are therefore considered as the preconditions in the transformation process of rural agrarian economy. Hence, the question of whether access to resources influences farm households’ production decisions, performance and efficiency is very important. In this paper, we attempt to estimate the impact of a subsidized credit on farm output and efficiency of small and marginal rice farmers of Bangladesh. Using survey data of a field experimental study, we show that relaxing the credit constraint has significant positive impact on farm output and efficiency. On an average, small-scale rice farms with access to subsidized credit are found to be 13% more efficient than farms with no credit access. The increase is 76% on average when we use the randomized access to credit as instrument for farm credit. We also examine the impact heterogeneity of access to credit by rice variety. We find that cultivation of modern Hybrid rice variety is significantly higher (on average 17%) for treatment farm households compare to the control group. However, we do not find much evidence of heterogeneous productivity impact of access to credit by HYV vs. Hybrid rice. Combining the results, we conclude that access to credit is effective in improving the overall output and efficiency of marginal and small-scale rice farm households. Thus, policies enhancing the credit access of marginal farmers are important for sustainable agricultural development of rural developing economy.

Suggested Citation

  • Jimi, Nusrat A & Kumbhakar, Subal & Nikolov, Plamen V & Malek, Mohammad Abdul, 2016. "Does Credit Access Improve Firm Output? Evidence from a Field Experiment in Bangladesh," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236230, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea16:236230
    DOI: 10.22004/ag.econ.236230
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    References listed on IDEAS

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    1. Uaiene, Rafael N. & Arndt, Channing, 2009. "Farm Household Efficiency In Mozambique," 2009 Conference, August 16-22, 2009, Beijing, China 51438, International Association of Agricultural Economists.
    2. Wouterse, Fleur, 2011. "Social services, human capital, and technical efficiency of smallholders in Burkina Faso:," IFPRI discussion papers 1068, International Food Policy Research Institute (IFPRI).
    3. Almas Heshmati & Subal C. Kumbhakar, 1997. "Estimation Of Technical Efficiency In Swedish Crop Farms: A Pseudo Panel Data Approach," Journal of Agricultural Economics, Wiley Blackwell, vol. 48(1‐3), pages 22-37, January.
    4. William H. Greene, 1993. "Frontier Production Functions," Working Papers 93-20, New York University, Leonard N. Stern School of Business, Department of Economics.
    5. Sharma, Khem R. & Leung, PingSun & Zaleski, Halina M., 1999. "Technical, allocative and economic efficiencies in swine production in Hawaii: a comparison of parametric and nonparametric approaches," Agricultural Economics, Blackwell, vol. 20(1), pages 23-35, January.
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    Keywords

    Community/Rural/Urban Development; Production Economics; Productivity Analysis;

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