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Farm investment, credit rationing, and public credit policy in Poland: a microeconometric analysis

  • Petrick, Martin

The aim of this paper is to empirically analyse the effects of governmentally promoted credit access on the investment behaviour of credit rationed farmers. This is done by specifying an empirical investment equation which is estimated on a cross-sectional sample of Polish farm household data. In contrast to conventional neo-classical investment models, the investment equation contains the financial variable long-term credit access, which plays the central role in this study. The econometric analysis is used to analyse the determinants of credit access and estimate the marginal effect of credit on investment, which in turn provides the key information for policy evaluation. The results suggest that access to subsidised credit has a significant role in determining investment behaviour of farmers who self-classified as being exogenously credit constrained. This classification applies to 45 percent of all respondents. Major determinants of credit rationing are the reputation of the borrower and the demographic household composition. In various specifications of the creditinvestment relationship, including a cubic Tobit model, the average marginal effect of credit on investment was smaller than one. This implies that credit is partly used for other purposes than productive investment. Every second borrower invests less in productive assets than borrowed. However, over a commonly observed range, the marginal effect increases with an increasing credit volume. Even so, the investment volume is negatively related to farm size. A government policy aiming at the promotion of productive investment should hence emphasise lending in larger amounts without discriminating small farms.

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Paper provided by Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO) in its series IAMO Discussion Papers with number 43.

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Date of creation: 2002
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Handle: RePEc:zbw:iamodp:14872
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