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Influence of credit constrain on production efficiency


Farm households in Ethiopia operate under credit constraint condition. However, little emphasis was given in earlier efficiency studies. Considering credit constraint explicitly, this paper estimated technical efficiencies of credit-constrained and unconstrained groups in a stochastic frontier technique using farm household survey data from Ethiopia. Credit-constrained group had mean technical efficiency score 12% less than that of the credit-unconstrained group. Given the largest proportion of farm households with credit-constraint in Ethiopian farming population, this gap implies considerable potential welfare loss in output due to inefficient production. Improving technical efficiency of all farm households in general but more of particularly the credit-constrained group is desirable. Additional sources of inefficiency differential between the two groups were also identified. Education level of household heads, land fragmentation and loan size significantly affected technical efficiencies of both groups. Wealth and experience additionally affected the credit-constrained group, and household size affected the unconstrained group. Results suggest the need for improving access to credit, education and landholding for both groups, and wealth and experience of particularly the credit-constrained group

Corporate Author: 
Getnet Alemu and Edilegnaw Wale (Editor) & Ethiopian Economic Association/Ethiopian Economic Policy Research Institute
Ethiopian Economic Association (EEA)
Primary Descriptors: 

stochastic frontier

Secondary Descriptor: 

technical efficiency, smallholders

Cataloge Date: 
Broad Subject heading: 
Credit market
Call Number: 
330.963 PRO 2009
Serial Key Title: 
Proceedings of the Fifth International Conference on the Ethiopian Economy
Publication catagory: 
Content type: 
Publication date: 
2013-12-27 23:09:00
Forum or Discussion date: 
2013-02-27 15:02:12
Place of publication: 
Addis Ababa, Ethiopia
Type of material: 
Current frequency: