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

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  • Daniel Ayalew Ali
  • Klaus Deininger

Abstract

Ethiopian village-level data from two locations are used to explore determinants and crop productivity-effects of credit rationing in semi-formal markets. High levels of risk lead to widespread credit rationing (voluntary and involuntary) with political and social networks facilitating credit access. But impacts differ across zones: in high-potential surplus-producing areas, eliminating credit constraints is estimated to increase crop productivity by some 11 percentage points. In low-productivity drought prone areas where credit mainly helps smooth consumption, no relationship between credit rationing and crop productivity emerges. The impact of measures to alleviate credit constraints will thus differ depending on why credit rationing is observed and available productive opportunities.

Suggested Citation

  • Daniel Ayalew Ali & Klaus Deininger, 2014. "Causes and Implications of Credit Rationing in Rural Ethiopia: The Importance of Zonal Variation," Journal of African Economies, Centre for the Study of African Economies, vol. 23(4), pages 493-527.
    • Handle: RePEc:oup:jafrec:v:23:y:2014:i:4:p:493-527.
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    File URL: http://hdl.handle.net/10.1093/jae/eju008
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    Cited by:

    1. Liqiong Lin & Weizhuo Wang & Christopher Gan & Quang T. T. Nguyen, 2019. "Credit Constraints on Farm Household Welfare in Rural China: Evidence from Fujian Province," Sustainability, MDPI, vol. 11(11), pages 1-19, June.
    2. Kibrom A. Abay & Goytom A. Kahsay & Guush Berhane, 2018. "Social Networks and Factor Markets: Panel Data Evidence from Ethiopia," Journal of Development Studies, Taylor & Francis Journals, vol. 54(1), pages 174-190, January.
    3. Elias, Hailu, 2019. "Impact of Credit Constraints on Agricultural Productivity in the face of Climate Variability: Panel Data Evidence from Rural Ethiopia," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 28(02), October.
    4. Elias, Hailu & Ayele, Mintewab Bezabih & Ferede, Tadele, 2017. "The Impact of Credit Constraints and Climatic Factors on Choice of Adaptation Strategies: Evidence from Rural Ethiopia," EfD Discussion Paper 17-1, Environment for Development, University of Gothenburg.
    5. Elias, Hailu, 2018. "Multiple Credit Constraints and Borrowing Behavior of Farm Households: Panel Data Evidence from Rural Ethiopia," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 27(01), April.
    6. Martinson Ankrah Twumasi & Abbas Ali Chandio & Ghulam Raza Sargani & Isaac Asare & Huaquan Zhang, 2022. "Off-Farm Employment and Agricultural Credit Fungibility Nexus in Rural Ghana," Sustainability, MDPI, vol. 14(15), pages 1-15, July.

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