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Causes and Implications of Credit Rationing in Rural Ethiopia : The Importance of Spatial Variation

ACCESS TO CAPITAL ACCESS TO CREDIT ACCESS TO FORMAL CREDIT ACCESS TO LOANS ADVERSE SELECTION AGRICULTURAL ACTIVITIES AGRICULTURAL ECONOMICS AGRICULTURE ALLOCATION OF CREDIT AMOUNT OF CREDIT ASSETS BORROWER BORROWING BORROWING CONSTRAINTS CAPITAL CONSTRAINTS CAPITAL MARKET CAPITAL MARKETS COLLATERAL COLLATERAL REQUIREMENT COLLATERAL REQUIREMENTS COMPETITIVE MARKETS CONSUMER DURABLES CONSUMPTION SMOOTHING COOP COOPERATIVES CREDIT ACCESS CREDIT ASSOCIATIONS CREDIT AVAILABILITY CREDIT CONSTRAINT CREDIT CONSTRAINTS CREDIT MARKET CREDIT MARKET ACCESS CREDIT MARKETS CREDIT RATIONING CREDIT UNIONS CREDITS DEMAND FOR CREDIT DEPENDENT DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DEVELOPMENT STRATEGY DISEQUILIBRIUM ECONOMETRIC ANALYSIS ECONOMIC CRITERIA ECONOMIC DEVELOPMENT ECONOMIC OPPORTUNITIES EMPLOYMENT OPPORTUNITIES ENDOWMENTS EQUALITY EQUILIBRIUM CREDIT EQUILIBRIUM CREDIT RATIONING EXCESS DEMAND EXCHANGE RATE EXCLUSION FARMER FARMERS FINANCIAL MARKETS FORMAL CREDIT FORMAL FINANCE FORMAL FINANCIAL INSTITUTIONS FORMAL LOAN HOLDING HOUSEHOLD WELFARE HOUSEHOLDS INCENTIVE EFFECTS INCOME INDEBTED INEFFICIENCY INFORMAL CREDIT INFORMAL LOANS INFORMATIONAL ASYMMETRIES INSTRUMENT INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL BANK INVESTMENT OPPORTUNITIES LABOR MARKETS LACK OF ACCESS LACK OF COLLATERAL LAND ADMINISTRATION LAND OWNERSHIP LENDERS LIQUIDITY LOAN LOAN AMOUNT LOAN APPLICANTS LOAN APPLICATION LOAN APPLICATIONS LOAN REQUEST LOAN SIZE LOAN SIZES LOAN TERMS LOANABLE FUNDS MAXIMUM LIKELIHOOD ESTIMATION MAXIMUM LIKELIHOOD METHOD MICRO-FINANCE MICRO-FINANCE INSTITUTIONS MICROFINANCE MICROFINANCE INSTITUTIONS MISSING MARKETS MONEYLENDERS MORAL HAZARD OUTREACH PERMANENT INCOME PORTFOLIO POSITIVE COEFFICIENT POSSESSION POTENTIAL BORROWERS PRODUCTIVITY PROFITABILITY PROVISION OF CREDIT REGRESSION MODELS REPAYMENT RETURNS RURAL CREDIT RURAL CREDIT MARKETS RURAL FINANCIAL MARKETS SAVINGS SMALL FARM SMALL LOANS SMALLHOLDER SMALLHOLDER FARMERS SMALLHOLDERS SOCIAL NETWORKS SOURCE OF CREDIT STOCKS TERMS OF LOAN TRANSACTION TRANSACTION COST TRANSACTION COSTS TRANSITION COUNTRIES UNIONS USE OF COLLATERAL VALUE OF OUTPUT VARIABLE INPUTS VILLAGE VILLAGES WARRANTS WEALTH WEALTH EFFECTS WORKING CAPITAL
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World Bank, Washington, DC
Africa | Ethiopia
2012-06-29T19:21:35Z | 2012-06-29T19:21:35Z | 2012-06

This paper uses Ethiopian data to explore credit rationing in semi-formal credit markets and its effects on farmers' resource allocation and crop productivity. Credit rationing -- both voluntarily and involuntarily -- is found to be widespread in the sampled rural villages, largely because of risk-related factors. Political and social networks emerge as key determinants of access to credit among smallholder, peasant farmers. Significant regional variation emerges as well. In high-potential, surplus producing areas where credit is largely used for agricultural production, eliminating credit constraints is estimated to increase productivity by roughly 11 percentage points. By contrast, in low-productivity, drought prone areas where loans were rarely used to acquire inputs for crop production, the authors find no relationship between credit rationing and agricultural productivity. To be effective, efforts to improve agricultural productivity not only need to increase credit supply, but also explore the reasons for credit rationing and the availability of productive opportunities.

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