Abstract
The purpose of this paper is to determine if there are positive microeconomic effects from a statefunded loan participation program on farm productivity and investment behavior. 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 twostage 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. It is found that there are liquidity effects of credit constraints for a significant share of the beginning and lowresource farmers who participated in the statefunded 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. This paper is the first to apply the switching regression model to a statefunded farm loan program for the purpose of evaluating the financial impacts on farmer participants.
Original language | English (US) |
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Pages (from-to) | 5-21 |
Number of pages | 17 |
Journal | Agricultural Finance Review |
Volume | 72 |
Issue number | 1 |
DOIs | |
State | Published - May 4 2012 |
Keywords
- Agriculture
- Credit constraint
- Farm productivity
- Farms
- Government policy
- Loans
- Microeconomics
- Real estate investment
- Statefunded loans
- Switching regressions
- United States of America