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Credit access and borrowing costs in Poland's agricultural credit market: a hedonic pricing approach

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  • Petrick, Martin
  • Latruffe, Laure

Abstract

The paper empirically investigates credit access and borrowing costs in Poland's rural financial market. We conduct an econometric analysis based on cross-sectional survey data including formal loans taken in the period 1997-1999. A hedonic regression of the effective interest rate, comprising both the nominal interest rate and additional transaction costs faced by farmers, allows the identification of the determinants of borrowing costs. These determinants can be interpreted as loan attributes and their implicit prices calculated. We proceed in two steps. In the first step, farmers' credit access is estimated by a Probit model. The second step is the hedonic regression, in which the Probit results are taken to test for selectivity. The results support the widely held view that formal lenders tend to discriminate against smaller farms. They also suggest that the presence of devices to screen and signal the quality of borrowers makes borrowing more likely and reduces borrowing costs. Furthermore, the analysis reveals that the choice of the type of bank has a significant effect on borrowing costs. All other loan attributes equal, the traditional institutions for agricultural lending (the cooperative banks and the governmentally controlled Bank for Food Economy) offer between 1.1 and 1.3 percentage point higher effective interest rates as compared with the most favourable terms available, which has implications for a potential future restructuring of the Polish rural banking sector. In addition, there is strong evidence that the government subsidisation of nominal interest rates is severely counteracted by increased transaction costs and an adverse selection of borrowers. However, there is still a net reduction of the effective interest rate by 1.4 percentage point on average, compared to non-subsidised loans. This raises the question whether lending procedures under the government programme are sufficiently streamlined and whether loans are effectively targeted.

Suggested Citation

  • Petrick, Martin & Latruffe, Laure, 2003. "Credit access and borrowing costs in Poland's agricultural credit market: a hedonic pricing approach," IAMO Discussion Papers 46, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
  • Handle: RePEc:zbw:iamodp:14905
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    References listed on IDEAS

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    1. David de Meza & David C. Webb, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 281-292.
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    Cited by:

    1. Ciaian, Pavel & Pokrivcak, Jan, 2011. "Do agricultural subsidies crowd out or stimulate rural credit institutions? The Case of CAP Payments," Working Papers 117485, Factor Markets, Centre for European Policy Studies.
    2. Bojnec, Štefan, 2011. "Agricultural and Rural Capital Markets in the EU Candidate Countries: Croatia, the Former Yugoslav Republic of Macedonia and Turkey," Factor Markets Working Papers 108, Centre for European Policy Studies.
    3. Ciaian, Pavel & Pokrivcak, Jan and Katarina Szegenyova, 2012. "Do agricultural subsidies crowd out or stimulate rural credit market institutions? The case of EU Common Agricultural Policy," European Integration online Papers (EIoP), European Community Studies Association Austria (ECSA-A), vol. 16, November.
    4. Bojnec, Stefan, 2011. "Agricultural and Rural Capital Markets in the EU Candidate Countries: Croatia, the Former Yugoslav Republic of Macedonia and Turkey," Working Papers 117489, Factor Markets, Centre for European Policy Studies.
    5. Kata, Ryszard & Walenia, Alina, 0. "Financial Exclusion Of Farmers And Rural Entrepreneurs," Journal of Agribusiness and Rural Development, University of Life Sciences, Poznan, Poland, issue 2.

    More about this item

    Keywords

    agricultural finance; credit policy; transaction costs; Poland; microeconometrics; Agrarfinanzierung; Kreditpolitik; Transaktionskosten; Polen; Mikroökonometrie;

    JEL classification:

    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
    • P32 - Economic Systems - - Socialist Institutions and Their Transitions - - - Collectives; Communes; Agricultural Institutions

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