Access to credit and heterogeneous effects on agricultural technology adoption: Evidence from large rural surveys in Ethiopia

Abstract

Modern agricultural technologies hold huge potential for increasing productivity and reducing poverty in developing countries. However, adoption levels of these technologies have remained disappointingly low in Africa. This paper analyzes the effect of access to credit on the likelihood of adoption and use intensity of chemical fertilizers using data from large rural surveys in Ethiopia. Using a heteroscedasticity-based identification strategy to address the endogenous nature of access to credit, we find that access to credit has significant positive effects on adoption and intensity of use of chemical fertilizers. However, important heterogeneities are observed. Credit obtained from formal sources is more important for the intensity of use than for the decision to adopt chemical fertilizers. Credit taken with the primary purpose of financing agricultural inputs is more likely to promote adoption of chemical fertilizers than credit taken per se. Furthermore, reported credit effects are larger when estimated against the sample of credit-constrained non-users as compared with the pool of the whole sample of credit non-users. The results remain robust to several sensitivity analyses. Our results yield useful implications for the design, promotion, and targeting of credit services to leverage their effect on adoption of agricultural technologies.

Adoption and impact of improved groundnut varieties on household food security in Nigeria

“…For example [ 33 ], reported that majority of farmers in Nigeria and other Sub-Saharan African countries often finance modern input purchases with cash from non-farm activities and crop sales. On the other hand, credits are often taken to complement household food availability, and credit cost servicing (transaction costs, interest and repayments) might crowd out available resources to finance the technologies and discourage investments in improved technologies [ 34 , 35 ].…”

Farmers’ heterogeneous preferences for traits of improved varieties: Informing demand-oriented crop breeding in Tanzania

“…Subsistence production systems are dominated by staple crop production, and cash inflows do not arrive when inputs are needed to be purchased due to high seasonality of economic activities (Christiaensen, 2017). As a result, these households face binding liquidity constraints to finance improved varieties (Regassa et al, 2023). On the other hand, market-oriented groundnut farmers may have relatively better capacity to adopt improved varieties.…”

“…However, despite demonstrated productivity gains, adoption rates of improved varieties of many crops remain disappointingly low (Miriti et al, 2023). The literature has put forward several complementary explanations, including missing markets for risk and credit (Karlan et al, 2014;Regassa et al, 2023), limited information and social networks (Shikuku and Melesse, 2020), and behavioral constraints (Duflo et al, 2011). An alternative explanation could be that improved varieties do not possess traits that farmers value most.…”

Food companies' productivity dynamics: Exploring the role of intangible assets

“…In contrast, credit constraints could hamper optimal resource allocation for food manufacturing firms and deter productivity-enhancing investments. The effects of credit on technology adoption are larger for creditconstrained producers compared with credit nonusers (Regassa et al, 2023). Countries should also improve the quality of financial institutions because better access to financing could utilize the productivity-enhancing effect of leverage, as seen in Figure 1.…”